Why is PG&E shutting down power in California?

The incentives are clear:  to avoid liability from fires caused by its power lines.

PG&E filed for bankruptcy in January after amassing tens of billions of dollars in liability related to two dozen wildfires in recent years. As speculation grew that its equipment might be the cause of the Kincade Fire, its stock price plummeted about 30 percent on Friday to $5.08, a small fraction of its 52-week high of $49.42.

Liability laws are designed to give potential wrongdoers (tortfeasors) incentives to take appropriate care (by investing in safety measures), so that they do not cause too much harm to others.  However, shutting down power causes just as much harm to some consumers as the risk of fire.

A better solution would be to invest more in infrastructure, but PG&E is a regulated monopoly, which means that prices are set by the state.  OK, what are the incentives of the regulators?

the Office of Ratepayer Advocates ... has typically argued against maintenance and safety expenditures, so that rates can be kept low.

OK, now that we understand the problem, run it through the problem solving algorithm of Chapter 1:

1. Who made the bad decision?  PG&E shuts down its power grid to avoid lawsuits rather than investing in better infrastructure that can withstand high winds.
2. Do they have enough info to make a good decision?  Yes
3. Do they have the incentive to do so?  No.  The price regulator wants to keep prices low by preventing PG&E from making costly safety investments that would justify a rate increase.  

Post a better solution in the comments.

HT:  MarginalRevolution.com 

UPDATE:  Ted Nordhaus' Twitter Thread