Embroiled in lawsuits from wildfires, Xcel faces tradeoffs of safety vs. cost

A transmission line patrol foreman for Xcel Energy smacked the base of a wood power pole with a hammer on a Wednesday afternoon in April, kicking dust into the air with a thump as part of safety work on infrastructure in Inver Grove Heights.

This type of inspection work — from peering through binoculars to spot woodpecker damage to flying helicopters and drones over miles of cables — might be laborious, but it can be high stakes.

At least it was in the case of several Texas wildfires in February, which spread to more than 1 million acres, killed two people and more than 15,000 cattle while torching farms, homes and ranches across the rural northern Panhandle.

An Xcel utility pole fell in high winds and ignited the biggest in that series of blazes, which became the largest wildfire in Texas history. One March lawsuit alleges contractors had chipped away rotten wood from the bottom of the structure, leaving it unsteady and hazardous with the remains "chewed up below ground like a sharpened pencil or a beaver-gnawed tree."

"It should have been taken out of service long before it failed and ignited the deadly and devastating Smokehouse Creek Fire," the lawsuit stated.

Xcel has denied any negligence in not taking down or fixing the pole, and the Minneapolis-based company has also denied fault for another destructive 2021 wildfire in Colorado. But it is still confronting an onslaught of lawsuits and thus financial headaches from these disasters: Costs from the Texas Smokehouse Creek inferno could surpass Xcel's $500 million insurance coverage for 2024. Same with the Marshall Fire near Boulder.

Utilities cause only a small fraction of U.S. wildfires, but the fires they do spark are often more damaging, like California's 2018 Camp Fire that killed 85 people and led to manslaughter convictions for Pacific Gas & Electric after its transmission line failure.

Wildfires are becoming more disastrous in the U.S. because of climate change and other factors like urban sprawl, leading many in the utility industry, including Xcel, to grapple with how to prevent calamities that threaten human lives and company health.

Harden and cut

Destructive blazes in the Western U.S. prompted Xcel to quicken its own wildfire mitigation work, and since 2020, Xcel has spent more than $500 million on a wildfire prevention program in Colorado.

Duncan Callaway, a professor at the University of California Berkeley, said there are two main paths for utilities to mitigate wildfire risk: hardening infrastructure, such as burying power lines or insulating conductors, and cutting power.

That includes "fast trip" settings, which quickly stop power from flowing back to lines when impacted until an inspection. It can also mean shutting down electricity for lots of customers pre-emptively in dangerous conditions, a move that is becoming more routine in the West.

Michael Lamb, who oversees Xcel's electric and gas delivery infrastructure, said Xcel has done some of everything, even using technology such as high-resolution cameras and artificial intelligence for early detection in Colorado.

"Our industry is considering things we've never considered in the past because of our experiences with wildfires starting in California 10 years ago," Lamb said.

One Stanford University analysis found Xcel meets some important wildfire preparedness measures in Colorado, such as having a formal wildfire mitigation plan, but hits fewer marks in New Mexico, which doesn't require those plans. The company said it is doing mitigation work in the Southwest state. The study did not look at other Xcel states, including Texas.

Xcel has pre-emptively cut power for wildfire risk twice since the Smokehouse Creek blaze. The first wildfire safety outage in company history was in late March, affecting more than 2,500 customers in Texas and New Mexico. In April, Xcel turned off electricity for roughly 55,000 Colorado customers.

In the Colorado case, Lamb said Xcel projected "hurricane force" winds of more than 100 mph, low humidity and dry vegetation on the ground susceptible to burning. Those shutoffs, which Lamb called a "last resort" tactic, carry their own risks. Some residents said the loss of power hurt their business or caused other problems. A wastewater treatment plant in Boulder nearly spilled raw sewage.

Lamb said "hindsight is 20/20," when asked if Xcel should have cut power before Smokehouse Creek.

"Absolutely, looking back, I wish I could have done anything possible to prevent that level of damage from occurring," he said. "I wouldn't be human if I didn't think that."

Costs and risk

Reducing wildfires comes with a price that often falls on customers. Callaway said one major reason for escalating power rates in California is more wildfire spending.

Xcel said it hasn't tallied the impact of wildfire work on Colorado rates, though it's likely not as dramatic as in California. In general, safety outages are less expensive, and Berkeley analyst Callaway was part of research that found "fast trip" settings can be the most cost-effective. Callaway said they have been "tremendously successful" in California, but they do sometimes leave people without power and don't always prevent ignition.

Hardening infrastructure keeps the lights on, but is pricey.

"If we want to have a system that is as reliable as possible, then undergrounding [power lines] is the right thing to do," Callaway said. "I have yet to see an alternative that would be more effective. However, I have yet to see an alternative that is more expensive."

The Berkeley research noted Pacific Gas & Electric — which went into bankruptcy in 2019 after its power lines caused the California Camp Fire, among others — paid $4.3 million to bury just 1 mile of distribution line in 2020.

In October, Xcel won a $100 million federal grant, to which Xcel added $140 million, to address wildfire problems and strengthen the grid in Colorado, Minnesota, New Mexico, Texas and Wisconsin.

But that can't help what's already sparked.

Xcel's stock dropped nearly 9% the day it admitted to playing a part in the Texas fire. The company expects losses of at least $215 million and is facing 15 lawsuits, including a wrongful death case and 46 fire-related claims.

The Colorado Marshall Fire killed two people and reportedly caused more than $2 billion in property damage, and Xcel knows of 302 legal complaints on behalf of more than 4,000 plaintiffs tied to that blaze. Xcel contends a flawed investigation there incorrectly concluded the company's equipment was the likely source of one of two fires that then merged.

Travis Miller, an energy and utilities strategist at financial services firm Morningstar, predicted a 50% chance shareholders will face $1 billion of pretax liabilities, including penalties and fines from the Texas and Colorado fires.

That won't put the $31 billion-valued Xcel out of business, but still, Miller said natural disasters are an inherent risk for utilities. And that can discourage investment.

Xcel, along with a federal utility trade group, is interested in limiting financial damages for companies, with CEO Bob Frenzel endorsing "some form of backstop insurance program" during an April call with analysts. California started a wildfire fund in 2019 that utility customers and shareholders bankroll in exchange for financial protections.

The U.S. needs a "holistic, society-wide approach" to reducing fires no matter the cause, said Scott Aaronson, senior vice president of security and preparedness for Edison Electric Institute, which represents all investor-owned electric utilities in the U.S.

"Bankrupting an electric company doesn't do anybody any good," he said. "Somebody still has to serve the customer."

Minnesota preparations

Xcel doesn't have a wildfire program with Minnesota regulators like it does in Colorado and is filing in Texas this year. But the utility does annually inspect a quarter of its regional transmission lines on foot and all of its system from the sky.

The company is also deploying closer fire monitoring and "wildfire safety settings," a precautionary mode used in bad conditions that enables "fast trip" technology to keep power lines off when touched.

By late April, Xcel had turned on safety settings more than a dozen times this year in the Upper Midwest, said Marty Mensen, Xcel's regional vice president of distribution and operations, with the lack of snow this winter as one reason for heightened caution. Mensen said the risk for wildfires "is more present than its ever been."

The Minnesota Public Utilities Commission has even taken action, starting with a hearing Tuesday, though it hasn't come up with any concrete steps yet.

Across Xcel's footprint, Lamb said, the company has taken lessons from the recent Texas fire and is looking closer at risk forecasting and public outreach. But the Smokehouse Creek Fire, despite its widespread damage, has not caused "transformative" or "material" technical changes.

"I would call them tweaks to our standards and processes," he said.