Utilities face a critical tradeoff in managing wildfire risk: absorbing high costs of Public Safety Power Shutoffs (PSPS) or investing in long-term solutions like undergrounding high-risk electric distribution lines. The central question is whether upfront investment in undergrounding is the only practical way to avoid greater losses down the line.
Cost of Outages vs. Cost of Undergrounding
- A single one-hour outage costs an average large commercial or industrial customer approximately $82,000 and an average small or medium commercial customer $1,200, according to Lawrence Berkeley National Laboratory. These costs escalate for multi-hour PSPS operations.
- Distribution undergrounding, once prohibitively expensive, is becoming more cost-effective due to industrialized delivery models, with standardized designs and strategic sourcing driving down per-mile costs. However, undergrounding transmission remains a capital-intensive option constrained by terrain, permitting, and routing.
Economic Benefits of Undergrounding
- The ratepayer cost of undergrounding the highest wildfire-risk distribution circuits is finite, recoverable over time, and reduces risk. California Public Utilities Commission (CPUC) authorized undergrounding 1,230 miles of distribution lines in PG&E's highest fire-risk areas, increasing typical residential customer bills by approximately $32.62 in 2024, but eliminating nearly 98% of wildfire risk on those lines.
- The cost asymmetry—open-ended, recurring PSPS exposure versus a finite, recoverable investment—makes undergrounding a viable solution. Each shutoff underscores the long-term value of undergrounding in eliminating ignition risk.
Regulatory and Policy Support
- PSPS are the industry’s most visible near-term tool for preventing utility-ignited wildfires but impose significant economic burdens. The Stanford Woods Institute estimated PG&E’s October 2019 shutoff cost the California economy approximately $2 billion.
- Regulatory and federal policies are converging to support undergrounding. CPUC and FERC have tightened cost-discipline requirements while providing pathways for undergrounding projects that demonstrate long-term risk reduction. Recent federal budget allocations support grid deployment and transmission reliability and resilience.
Undergrounding as a Core Grid Strategy
- Undergrounding has shifted from a discretionary aesthetic enhancement to a foundational pillar of grid resilience. Federal frameworks and utility capital plans position undergrounding as a frontline defense against climate-driven risk.
- The case for undergrounding extends beyond wildfire risk mitigation to include aesthetic and environmental benefits, as demonstrated by the Visual Impact Provision (VIP) in the U.K.
Challenges and Innovations
- Only a tiny fraction of U.S. transmission lines at or above 200kV are underground, with historical estimates as low as 0.5% of the total system.
- Utilities are industrializing delivery models to reduce costs, including using advanced construction equipment, reducing trench depth and width, reusing excavated soil, engaging local contractors, and employing machine learning-based risk modeling for circuit prioritization.
- Leading operators have standardized civil designs and entered into multi-year supplier partnerships to manage supply chain uncertainties.
Strategic Deployment and Operational Excellence
- Utilities are prioritizing investments on line segments with the highest wildfire risk and those serving critical infrastructure. Transmission underground cables are used for short sections in constrained corridors.
- Performance is measured through indicators such as daily trenching throughput, verified reliability improvements, and tracked underground failure rates against industry benchmarks.
Conclusion
The bottom line is that a single multi-hour PSPS event can lead to per-customer economic losses comparable to the long-term rate impact of permanently undergrounding that same circuit. As climate change exacerbates wildfire risks, undergrounding has become a critical, economically justifiable strategy for utilities, regulators, and ratepayers to ensure grid resilience.
