Utilities and Wildfires: Danger But Also Opportunity

Last year, 56,580 wildfires burned roughly 2.7 million acres in the US, according to the National Interagency Fire Center. That was actually the lowest total in the 24 years since the Center has been keeping track. It compares to a 2001-2020 average of nearly 7 million acres destroyed and nearly 10.3 million in 2020, the worst year on record. Nonetheless, wildfires in 2023 still caused billions of dollars and claimed lives. And numerous studies indicate vast areas of North America have developed a deadly combination of increasingly arid conditions and extended human settlement, putting them at elevated risk to extended and intense blazes. Few if any industries are as potentially exposed as electric utilities. Not only are wildfires capable of doing enormous damage to systems, interrupting sales and requiring massive repairs and remediation. But when damaged, live high and low voltage power wires become ready sources of ignition themselves, worsening ongoing blazes and in some cases starting them. On the other hand, in any crisis there’s opportunity as well as danger. Investors are all too predictably assuming the worst for utilities’ potential liability. And that means real upside from betting on even slightly more benign outcomes, which are in fact far more likely. Here’s what I mean.