No Priors Ep. 98 | With Convective Capital Founder Bill Clerico

1. 0:00 – 1:02

   Introduction

   1. EGElad Gil0:00

      (reverb) Welcome to No Priors. (instrumental music plays) All of us, I think, have been pretty horrified by what's happening in LA right now with the big fire. Uh, many of us are worried for friends who've lost homes there and their possessions. And, uh, there have been a string of major fires in California and elsewhere and so today what we wanna discuss on No Priors is, you know, what causes some of these fires? What are technologies to intervene? How should we think about these things more, uh, more generally? And we're recording this on Thursday, January 9th in the middle of the day. So, obviously this is a situation that's unfolding hour by hour and may change by the time this comes out. But we're very excited to have Bill Clerico joining us today on No Priors. Uh, Bill previously started a company called WePay, which he sold to JPMorgan. And he eventually left to start a fire-focused venture fund and he's been investing in different technologies, and interventions, and approaches to deal with wildfires and other things. And so, we're very excited to have you today. And I think both Sara and I have known you for many years, and you've been a prominent member of sort of the tech community. So welcome, uh, welcome to No Priors today.

   2. BCBill Clerico1:00

      Thanks. Thanks for having me.

   3. EGElad Gil1:01

      Maybe we should

2. 1:02 – 5:37

   Why are wildfires getting worse?

   1. EGElad Gil1:02

      preface it, or sort of take away the objection handling, because I feel like there's two things that people tend to blame these sorts of disasters on. One is they say, "It's just climate change. There's nothing we can do, and it's impossible to intervene." And then the other approach is to say, "Well, irrespective of climate, which could impact, you know, frequency of storms, or winds, or, you know, dryness for fires, we can still intervene in all sorts of ways." And so, at first I'd just love to hear your views on sort of which of those dimensions you land on and how we should think about the conversation in general going forward.

   2. BCBill Clerico1:33

      Maybe this is a cop-out answer, but I think it's, it's very much both. You know, uh, certainly, um, longer, hotter, drier fire seasons are in part caused by climate change. Um, that certainly exacerbates conditions for wildfire. But, you know, the reason that wildfires really reached a crescendo in the last 10 years, in my opinion, is not because of climate change, it's because of things like forest management. It's, it's because of the way we've constructed our electrical grid, sort of more acute self-inflicted wounds. And I think those are the things that are much more immediately addressable, you know? So, climate change is what it is, you know, the, the climate's warming. Um, certainly we wanna blunt the effects of that over time, but I think we need to think about wildfire in that context and, and in that context, there's a lot of things that we can do to, to impact it.

   3. EGElad Gil2:18

      Yeah. One of the things that fascinates me is if you're a strong believer in climate change, then you should actually prepare even more, right? If you're assuming that there'll be more events like this, then you should be building out the infrastructure even more aggressively. And it seems like the opposite has been happening at least in the state of California and some nearby states where similarly we've seen sort of these giant fire outbreaks. And so I was hoping maybe what we could start with is just an understanding of, like, what are some of these contributing factors besides climate and, and how should we think about them and how have things changed over the last few decades in terms of what people have done for them?

   4. BCBill Clerico2:48

      Happy to go there. I, maybe what I'll just say real quickly though first is that I think in even the climate investing realm, there's some big changes happening. You know, I think, like, if you look at climate capital that's deployed, 98% of it goes into what's called mitigation, so reducing CO₂. 2% of it goes into resilience and adaptation. And I, I think what we are seeing, seeing is the pendulum one that is swinging rapidly, where now I think climate and climate investing is very much starting to be inclusive of resilience and adaptation. I think that's a good thing, and I think it sort of acknowledges the reality because I... Sure, we should emit less carbon. That would be great. Um, but we need to deal with everything that's been emitted in the changing climate. And so I think that, that's, that's a very positive thing. To your question on what else is causing wildfire, I look at it as, you know, sort of a couple factors. The first and, in my opinion, the most important one is just that fuel density, uh, or forest density is, has increased three times since, uh, you know, really in the last 100 years. Um, basically starting in the 1930s, the US Forest Service implemented this policy of what they called maximum suppression and they rolled out this, like, very famous 10:00 AM policy, which meant that you hear about a wildfire and it's gotta be out by 10:00 AM the next morning. You know, that was, I think, very well intended and it was intended to protect timber and, uh, you know, and protect towns and cities and prevent things from getting too big. And for a long time, it worked fairly well. You know, you put out the fire quickly, uh, you're, you're good to go. Um, but what happened was these forests which had regularly burned prior to that, you know, with sort of high frequency but low severity fire, just got denser and denser and denser and denser. And so today, they're probably at least three times denser than they were a- around, you know, the turn of the century. Many places, they're, they're far denser than that. And so, and then you layer on top of that the fact that they're dry and that the, the weather's hotter and, and, and all that as well. And so we've made very little progress in undoing that. And if anything, they continue to get denser because we have, uh, still have this policy of, of maximum suppression. And so, you know, if we wanna undo that density, we need to take that really seriously. Um, you know, there's really two ways to do that. The first is prescribed fire, which is basically using, well, fire itself, um, under a very prescribed set of conditions to burn these fuels and, and get 'em off the, the landscape. Um, so essentially it's lighting fires in the spring instead of in the summer, uh, and, and, and managing them. Um, and then the second is timber and sort of what they call mechanical thinning, but basically cutting trees down. And, and both of those things I think are incredibly important, but have been made incredibly difficult by the way we sort of govern ourselves. Um, and they're, they're sort of both actually quite unpopular. It's, I don't think it's quite as simple as saying, "Oh, it's a single politician that has done it." No one wants a prescribed burn next to their house. No one wants a smoky, you know, uh, a smoky weekend to ruin their, their weekend in Tahoe. And so, um, there's some really big cultural changes to, to, to do that.

   5. EGElad Gil5:36

      I thought there was

3. 5:37 – 10:47

   Policies and regulatory decisions

   1. EGElad Gil5:37

      other things related to what you're saying as well in terms of, for example, if, uh, there's a higher density of sort of, like, fallen trees and wood that's been sort of accumulating that you're not allowed to haul off of your own land and that, you know. So I thought there was other sort of policy and regulations that impact aspects of both the forest density, fuel availability for fires, conditions to start fires, things like that as well in addition to everything that you're saying.

   2. BCBill Clerico5:57

      Yeah. I mean, for sure. A- as an example, so I own 170 acres of timber. Uh, it's, it's Douglas fir and, and redwood timber. Sara's been there. Um, and we did, I wanted to do treatment on that land. It hadn't been treated in a long time and we wanted to, to log parts of it with a, with a conservation strategy.It took three years and an, and an enormous amount of money-

   3. EGElad Gil6:19

      (laughs)

   4. BCBill Clerico6:19

      ... including all kinds of crazy loopholes. Like, we had to, I had to hire a contract biologist to come to this property, which is out in the middle of nowhere, six times over the course of two years to call for, like, the northern spotted owl. And so, like, you know, I think we have this, like, very well-intended environmental regulation and policy, but over the decades, it's just become this, like, morass of regulations, which makes it really hard to do that. And no one has really stepped back and said, "Okay, what's more important to us? Uh, the northern spotted hi- owl habitat, or, you know, incinerating our forests and our, our towns and cities? And like, can we make a rational trade-off? Because we, we probably can't have them, them both." Or we probably could, to be honest, but, but the way the regulations are, are, are set, you can't. And so, you know, there's just some really obvious stuff like that that just introduces red tape, and when you introduce red tape, it just adds expense, it slows down, it doesn't happen, doesn't get done.

   5. EGElad Gil7:12

      Yeah. It's funny, I, I looked up some of the numbers on this, and apparently, um, for higher risk forests needing prescribed burns, it takes an average of 4.7 years to get through environmental reviews for simple projects and seven and a half years or so for longer-

   6. BCBill Clerico7:24

      Yeah.

   7. EGElad Gil7:24

      ... for more complex projects. And so basically you're waiting, you know, four to seven years just to get through a review.

   8. BCBill Clerico7:31

      It, it's absolutely crazy.

   9. EGElad Gil7:33

      To be able to even print something out. Um, and there's some lawsuits around this, right? The Sierra Club, for example, I think sued the Forest Service, um, to prevent, in 2007, to prevent them from doing some sort of categorical exclusion for controlled burns, for fuel reduction, so there's very active both litigation and policy that I think has increased over time versus decreased, making this a much worse situation as well.

   10. BCBill Clerico7:56

       I think under a change in administration, you know, it's pretty clear that I think there will be a more aggressive approach to getting some of these projects done, because right now, it just doesn't work. The US Forest Service, I saw a stat, they spend, um, 40% of their budget, which is about $250 million a year on planning, right? And so-

   11. EGElad Gil8:13

       Mm-hmm.

   12. BCBill Clerico8:13

       Uh, which is essentially dealing with this, this kind of stuff. Um, and that's just, like, totally unacceptable. I mean, it's a, it's a total misuse of taxpayer dollars. They have to because that's the way the, the laws are written, but we need to sort of make those changes. There's a piece of legislation actually right now in the House called Fix Our Forests, the Fix Our Forests Act. It's a bipartisan piece of legislation. It brings together Bruce Wasserman, who's the chair of the Hou- House Natural Resources Committee, he's a Republican from Arkansas, and folks from California, and they're trying to fix and do permitting reform around, um, forest and timber management. So, I think there's a recognition that this, um, needs to get addressed, but th- the current condition is laughable.

   13. EGElad Gil8:51

       Yeah.

   14. BCBill Clerico8:51

       It's a joke.

   15. EGElad Gil8:52

       I guess the regulatory problem here, or the policy problem, sits at the local and state level versus the federal level, because you describe legislation, um, Forest Service. There is a very open question right now, uh, as to how much of this is a California-specific issue.

   16. BCBill Clerico9:09

       There's a lot to unpack there. Maybe I'll start with just some stats. Florida, you probably didn't realize that there's wildfire in Florida, but there is. Florida does two to three million acres a year of prescribed burning. It's pretty amazing. I mean, they, they are one of the most advanced states when it comes to doing prescribed fire. California, uh, set a goal this year, or last year to do 100,000 acres. That was the goal. I'm pretty sure we fell short of that goal, and, you know, we wanna build our way up to, I think it's a million acres over the, over the course of the next decade. So, so there very much is a California problem. Now, is that because, purely because of our politicians? I bet, I think that's part of it, but I do think that part of it is also cultural. Like, uh, you know, Florida, they've been doing this for decades. Culturally, the state embraces it, they accept it, it's popular at the local levels, um, there's a workforce that's comfortable with it, the public safety agencies are comfortable with it. Um, in California, we've really gotten very far away from it, and there's a deep fear of it. If you're a local burn boss or fire chief and you wanna do a prescribed fire, you know, it is the right thing to do, but it's kind of risky. If it, if it escapes, if it burns someone's property, if you start the next, you know, Palisades fire, you know, you're gonna lose your job. This sort of risk that's where the risk outweighs the benefit in many cases, and we don't have the kind of cultural history here and the momentum here to just sort of accept that. And so, um, I do think that California is, is pretty far behind a- and, and needs to catch up. I do think our forests are also different. The risk here is far different than in, in the Southeast. So, there's good reason in part for that, but, um, I do think part of it is also political will and, and having the right leaders that take this seriously.

   17. EGElad Gil10:46

       How do you think about,

4. 10:47 – 13:19

   Housing: building codes and permitting

   1. EGElad Gil10:47

      um, this issue in a context that's more urban or something that crosses over between, uh, urban and nonurban environments? So, Palisades fire is a great example where-

   2. BCBill Clerico10:57

      Yeah.

   3. EGElad Gil10:58

      ... there's a lot of sort of hillsides that were, you know, densely populated with trees next to a city center, and similarly there, when you think about, you know, thinning things out-

   4. BCBill Clerico11:07

      Yeah.

   5. EGElad Gil11:07

      ... and other sort of approaches or aspects of that.

   6. BCBill Clerico11:10

      I think this is another sort of interesting California issue, which is just the issue of housing. You know, in California, it's very difficult to build housing in the city, you know, so people build, a lot of times it gets built out in what's called the wildland urban interface, so sort of the woods. And if you look at growth of housing units in the, in the WUI, in the wildland urban interface, it's increased by like 46% since 1980. So, we've built tremendous amount of housing stock in these like very high-risk areas, and it's not just a California issue. That's, you know, across the West, you know, Idaho, Montana, um, you know, Yellowstone fanboys, all that kind of stuff. And so there, there's been a tremendous growth of housing in these areas, and I think that's a big part of why wildfires today are much more serious than they were 20 years ago. If you burn a million acres 20 years ago out in the, out in the woods, you may affect some housing, but it wasn't affecting major cities and neighborhoods. And now, as these neighborhoods have been basically built out into the, into the wildland urban interface, these fires have much more significant impact. And, and we haven't really evolved the way we build these communities to, to recognize that. Again, it's, it's just very unpopular to have pro-fire building codes, and so like, one of the sad anecdotes is that, you know, the c- the City of Paradise was essentially destroyed by the Camp Fire in 2018, um, city essentially leveled. When the city went to rebuild, there was an opportunity to pass-... you know, more significant building codes at the local level. And that was voted down, uh, because it was seen as sort of too expensive and too restrictive for people to build. So Paradise largely got rebuilt with existing building codes. Just rationally it doesn't make any sense. But again, it's sort of about these, like, political wills, uh, to, to get stuff done. So I, I think the, solving the WUI problem, it's, it requires us as a society to think differently about these risks, right? Like, you wouldn't, you wouldn't build a house on the ocean on the sand without the right type of foundation and flood gates and, you know, or a raised house. Yet, we go and build houses in these tinderboxes, um, and not recognizing the, what needs to happen there. So again, I think that's just a place that needs to catch up.

   7. EGElad Gil13:06

      I think one thing that happened after, um, some of the fires in the '60s was people actually installed sprinkler systems on their roofs, right, externally.

   8. BCBill Clerico13:14

      Yeah.

   9. EGElad Gil13:14

      So that they could basically pump water on their roofs during fires. And, you know, one of the things

5. 13:19 – 16:20

   Key factors in response

   1. EGElad Gil13:19

      that was really striking, if you look at videos that have been coming out of Palisades for example, is that the projects that, um, Caruso, um, had in Palisades Village, uh, were completely intact.

   2. BCBill Clerico13:32

      Yeah.

   3. EGElad Gil13:33

      And I think it's because as the fire was happening, he just went and he sprayed it all with fire retardant. Why didn't that happen at a larger scale?

   4. BCBill Clerico13:40

      When you have a large wildfire incident, you know, in- initially, in the initial phase, the fire department does what's called an initial attack. So you're going after the wildfire, and you're trying to stop it. If you're not successful there, you know, you, you enter sort of a much more prolonged sort of campaign incident. And typically in these high wind conditions like the ones we're seeing in southern California, the fire department usually switches gears to structure defense. So you're, you actually can't suppress these large flame fronts. You know, you can use aircraft, but even that, it's-

   5. EGElad Gil14:07

      Mm-hmm.

   6. BCBill Clerico14:07

      ... it's, the physics of it are just kind of too great. So they typically switch to protecting structures, and so they're, they out, they kind of fan out and they're protecting structures. Couple things happened here which made it really difficult. One, everyone decided to come out of the Palisades at the exact same time, all got on the road, and then abandoned their cars. And so you couldn't actually get engines and trucks into these neighborhoods to actually do structure defense, but that was their intent. They were gonna go spray down a bunch of houses. Um, but they just couldn't get enough units up there, um, sort of quickly enough.

   7. EGElad Gil14:35

      One of the claims associated with that was that the fire department was undermanned and under-resourced. So there was a $17.5 million budget cut for the fire department by the incoming mayor, and then there was some claim around a lack of training, la- lack of personnel, and other issues as well and in addition to a lack of water. And so it sounds like it was sort of this multi-pronged issue beyond just-

   8. BCBill Clerico14:57

      Yeah.

   9. EGElad Gil14:57

      ... access in. What do you think about those different factors?

   10. BCBill Clerico15:00

       Yeah, I mean, certainly water was an issue. Um, you know, there's been a lot of, like, kerfluffle on Twitter where people are ex- claiming that because of the water bill that didn't, wasn't acted on that that somehow was related to this. Uh, yeah, I don't think that is actually true at all. Like, really, the water issues were related to there's three one million gallon tanks. Um, as houses burn down, the plumbing opens. If you've got, like, a five-eighth or, or half inch plumbing connection into a house, that's gonna run at 20 or 30 gallons a minute. You have 500 of those going, you got really significant water flow and pressure drop. And so those water systems are just not really built for sort of these urban firestorm, uh, en- en- environments. So, you know, there's plenty of water in the state of California, at least sometimes, um, and there was here, but, um, you know, I think the water issue was much more about the scale of the incident. Access was an issue. In terms of staffing, that's not my area of expertise. You know, in the scale of the LA Fire Department budget, I don't think $17 million is really all that much. Um, in California, we have some of the best resourced fire agencies in the world. Cal Fire's budget is, I think, about triple what the US Forest Service budget is. In my opinion, we are relatively well resourced, at least compared to most of the other areas. I think that, you know, there's, these incidents, you know, need to be sort of, in my opinion, addressed before they start. Uh, once, once they do, it, they're very hard to stop. If you had 20% more engines, I don't think it would've made

6. 16:20 – 19:10

   Improving water supply and city infrastructure

   1. BCBill Clerico16:20

      a difference.

   2. EGElad Gil16:20

      Sure. And then I guess related to the water side of it, it sounds like reasonably simple infrastructure to build out, right? In other words, you could build more reservoirs. You could do a variety of things that should really impact supply in times of need as well as how you distribute water in such an event or flame retardants or other things. Seems like very doable from an infrastructure perspective. Um, why do you think the state of California or the cities haven't really acted on that?

   3. BCBill Clerico16:44

      In this case, you know, the water in those tanks was a sufficient volume. It was just about the system being depressurized. So, you know, maybe one of the big learnings from this is that the systems need to be built more modularly, right, to be able to shut off neighborhoods in order to be able to preserve the, the water supply. So, you know, a- again, like, I think there'll be a bunch of investigation done and hopefully some learnings emerge from this. I push back a little bit on the blanket, like, you know, if we just had more reservoirs. Like, I, I think this is actually a very acute issue. It's, it's not, you know... We should talk about reservoirs. I think the state of California does mismanage its water broadly. I just don't think it has a lot to do with the Palisades running out of water. Uh, I do think we do a terrible job managing our water (laughs) overall, but I think some of the connections that are being drawn, in my opinion, are a bit tenuous.

   4. EGElad Gil17:27

      If you were to change the infrastructure of a city to be able to do fire suppression optimally, what would be the big changes that you would make? Or what do you think you would prescribe? If you were mayor o- of LA for the next five years, what would you build out?

   5. BCBill Clerico17:40

      I think if you think about these neighborhoods in sort of layers, and so if your homes are on the outskirts, those homes need to be protected at, you know, a much higher rate than the homes on the, uh, on the inside. 'Cause once, once the fire sort of enters a community, it's really not a wildfire anymore. It's called, like, an urban conflagration, and it's basically houses burning, spreading house to house. It's, you know, similar to what happened in, like, Chicago or San Francisco in, like, the early 1900s. Those fires have much different sort of dynamics. They're not really wildfires, and those fires are very difficult to stop once they start. But if you can stop it at the perimeter and not have to, you know, if y- if you can fight the fire out on the outskirts and not have to, um, battle it sort of street to street, to me, that's the big, you know, that, that, that's what we should all be trying to solve for. And so on those, on those towns on the, or those houses on the outskirts, it's really aggressive defensible space, um, regulations and enforcement, making sure that you don't have grass and landscaping up to the structures on the house. Modern roofing, modern building materials on the house itself, tempered glass, could be rooftop sprinkler systems, water supplies there, uh, for the house and fire department.Even things like large driveways really help because then you can get fire trucks in and turn around. The fire department, when they come in to, to triage in these areas, they're quickly looking at a house and they're gonna size it up. They're like, "Can we protect this house? Is it safe for us?" And, you know, if, if you can make that house safe for a firefighter, the chance of survival for that house goes way up. And so, you know, thinking about how do we make those homes on the perimeters of our communities, um, really defensible I think is gonna be our best bet.

   6. EGElad Gil19:08

      Agreed. And then, uh,

7. 19:10 – 21:26

   Preventing wildfires

   1. EGElad Gil19:10

      you mentioned, uh, s- preventing fires from starting to begin with, and it seems like there's a few different major causes of fires. There's, um, some of the power line related incidents that have happened in the past couple years.

   2. BCBill Clerico19:21

      Yeah.

   3. EGElad Gil19:21

      There's cigarette butts. There's arsons. So I'm, I'm a little bit curious how you think about, you know, what do you actually do to prevent things from starting in the first place.

   4. BCBill Clerico19:28

      I think, um, the first place to start, in my mind, is the utilities. So utilities cause, uh, about 11% of ignitions, but those ignitions cause 50% of the damage. A- and why is that? It's because the same sort of high wind conditions that cause massive fire, uh, and, and negative fire conditions also cause utility equipment failures and lines to fall and stuff like that. For utilities, there's, there's things that they can do. They can do vegetation management, basically trimming trees along power lines. You know, our fund does an investment in a company called Overstory that helps utilities, um, prioritize where they're gonna trim these trees, uh, for sort of maximum effect. There's an acronym called PSPS or ESPS, which is public safety power shutoffs or enhanced safety power shutoffs. These are basically de-energizing lines in the, in advance of a red flag event, having more sensitive breakers on the, on the circuit so that if there's a short, it de-energizes quickly. They're not very popular with people. People don't like to have their power shut off, particularly before a big wind event. But, um, it can be a, a big, uh, improvement for safety. And then there's undergrounding and, and things like that as well, but those are very expensive. You know, undergrounding could cost three to four million dollars a mile, and so that, you know, manifests in, in larger, uh, electrical rates. If you can fix just the utility ignitions or reduce that a lot, that's like 50% of the damage reduced right off the bat. Lightning is probably about a third. Uh, and so... And, and typically lightning causes large acre fires, but less kind of urban interface fires because they can start, they, you know, typically will start further out and there's not much you can do about lightning, so... Although we have seen some startups that are trying to figure out ways to de-energize, um, large thunderclouds, which is, which is kind of cool. And then there's arson, which is actually a surprising cause of damages. It's at least 10% of ignitions are, are sort of arson or human caused. I suspect that it's on the rise. I don't have hard data about this, but just from conversations I've had with fire chiefs, um, it's a- it is a massive issue.

   5. SGSarah Guo21:20

      How would you explain the, like, level of underinvestment from the utilities in mitigation here? I've seen

8. 21:26 – 26:53

   Underinvestment in California’s utilities

   1. SGSarah Guo21:26

      estimates from, like, energy association reports of, like, we're $100 billion behind in, you know, as you said, undergrounding or whatever, uh, mitigations, and, like, it's not as if this is a new issue.

   2. BCBill Clerico21:39

      The Camp Fire is sort of the prototypical example of California where a hook on a transmission line that was 97 years old failed, uh, causing the line to hit the transmission line and incinerated the City of Paradise. And so, like, how can we have electrical equipment that's a hundred years old? It just seems like bonkers. I feel like I'm defending, you know, (laughs) all the least popular people here, California, politicians, and now utilities, but the reality is that, like, utility rates are regulated, and so, you know, for... Utilities actually love to spend capex. Their, their business models, if, you know, if PG&E spends $5 billion undergrounding lines or upgrading transmission lines, they get to mark that up by 15% and pass that through to rate payers. They love it. That's how they make money. And so there's sort of this, I think, ill-informed narrative that the utilities don't wanna spend the money. They actually love to spend the money and they would, they would die to spend that money. The issue is the regulators and the rate payer advocates that basically say, "We don't want the electric bills to go up by too much." And so there's a constant pushback against those investments, and that's kinda what's gotten us to where we are now where we have a really aging system, um, because there's been this pushback against higher electrical rates. And so, you know, in my opinion, the cost of energy generation is sort of artificially low right now. It does not reflect the risks of wildfire, uh, and, and so it probably means that electric bills need to go up, particularly in sort of high fire risk areas to fund a lot of this capex. It's undergrounding, you know, it's equipment upgrades, it's, it's all that other kind of stuff. So, um, you know, I, I don't have a number for you, but it's, you know, hundreds of billions of dollars.

   3. EGElad Gil23:08

      How do, um, California utility bills stack up relative to less regulated states?

   4. BCBill Clerico23:13

      They're high.

   5. EGElad Gil23:13

      So the question is why is that? And then you could imagine why people may have some concerns about increasing rates further in a system which is both aging out, poorly invested in, and yet has higher rates than most other places.

   6. BCBill Clerico23:25

      It's, it's a very rational concern. I guess my argument is that the risk here in California is much higher, right? Like, you could have a... If you have a utility line go down in New Jersey, where I grew up, you might start a wildfire, but you're not gonna... It's not gonna see quite the level of catastrophe that we saw. The risk tolerance there, you know, is different. And so... And, and I don't think our rates necessarily reflect that. I think there's also waste in the system. There's, you know, crazy requirements to generate a portion of energy from biomass and stuff like that, that just is sort of expensive and, and doesn't really make sense and costs a lot of money. So I think we could reorient to being a lot more efficient, but I think there's, in my opinion, more money that needs to be spent on de-risking the electrical system. Now, I think we could take it from some of the other areas where I think we misspend.

   7. SGSarah Guo24:08

      You demystify one other combination issue between set of corporations and regulators. Um, there's been a bunch of anger about, like, it's very hard to get fire insurance in large parts of California. I think there is a perspective of, like, the insurers are evil for not insuring, um, large areas. You just started an insurance company. Like, can you explain this?

   8. BCBill Clerico24:31

      Insurance rates in the admitted market are regulated, right? And so you have to basically file a rate sheet with the regulator. They say, "Yep, you're charging an appropriate amount, not too much, not too little." And you go sell that, you know, policy out in the market.... but you were not allowed in those rate applications to include the cost of reinsurance a- and you had to use historical models, not forward-looking models. And so those are, like, two massive issues because the cost of reinsurance in California has at least doubled, maybe tripled over the last five or 10 years. If you have a cost that just tripled and you cannot pass it through, I mean, that's, like, sort of a, a crazy thing, right?

   9. EGElad Gil25:05

      And let's assume forward-looking risk is higher than historical risk as well.

   10. BCBill Clerico25:09

       Exactly. And you're using 30 years of historical data to try to price risk which we all agree has changed significantly over those 30 years and probably will continue to change going forward. And so, you know, insurers are looking at their view of this risk and their costs to service that risk versus the rate that they can charge, and they're just like, "This is not a business. You know, we can't do this." And there's other issues on top of that too which is that it's very hard to exit policies once you've written them. Um, the California FAIR Plan actually has a surcharge for insurers in the state, um, by market share. So just by writing another policy in the state, you end up carrying more of the FAIR Plan risk as well. And so we've created this, like, very adverse environment for insurers in, in, in the state. And so what's happened, uh, you know, sort of predictably is there's been a mass exodus, right, where, um, they've canceled or non-renewed huge amounts of policies, particularly in high fire risk areas. Um, there's been a s- minor shift in the last three to six months where the insurance commissioner, because of this exodus, has changed their view, now allows the cost of reinsurance to be, um, factored in, now allows forward-looking models to be used, um, for the first time. Um, there's a bunch of restrictions on it still, but, you know, it sort of took market failure to kind of correct that behavior, um, 'cause by the way, that's an elected position and generally is, uh, a position that is highly influenced by consumer groups that wanna just keep rates low. And so we've sort of choked rates so low that, you know, we broke the system, and so now it's kind of reorienting. And a lot of those policies have moved to the FAIR Plan, which is this subsidized insurance plan of last resort, um, or to what's called the non-admitted market which is basically the unregulated market which is what Stand, which one of our companies participates in, right, non-admitted policies, um, which are not subject to, to those sort of pricing regulations.

   11. EGElad Gil26:52

       So

9. 26:53 – 29:35

   Innovative fire fighting technology

   1. EGElad Gil26:53

      I guess as we think about dealing with this overall set of issues, there's a few different things it sounds like we can do. One is regulation and policy around thinning out densely either forested or otherwise underbrush, fuel-related areas, et cetera.

   2. BCBill Clerico27:07

      Totally.

   3. EGElad Gil27:07

      It sounds like a second one may have to do with, um, infrastructure around water and the ability for certain neighborhoods or other things to turn off to preserve water pressure, there may be other aspects to that. Uh, there's how you think about insurance and protecting people and effectively changing policy or regulation there. What do you think could be done from a technology perspective? Like, why aren't there swarms of drones, like, spraying parts of the city or, you know, what, what is the more technology-driven stuff that you think should be done?

   4. BCBill Clerico27:35

      We're working on that. I think there's, there'll be more to come in that arena. On drones specifically, the sort of capabilities of drones to lift sufficient payload plus regulations around beyond visual line of sight operations have just, like, not been sufficient, I think, for the last, you know, for many years. I think that has very recently changed. The regulations have changed, the drones themselves are just a lot more capable now and can carry a lot more, um, our ability to do swarming. So, in my opinion, I think over the next five to 10 years, we will see exactly what you're talking about, drones to do rapid initial attacks. So you see, uh, you know, you get an ignition that's detected from a camera or satellite and drones are pre-positioned, can get there very quickly before the fire has a chance to grow, or drones to do structure protection and defense to go fan out and spray a bunch of houses and you avoid the road and access issues that we saw earlier and you avoid the water issues because they're carrying stuff with them too. So, I think that will be a big tool in the toolkit over the next, um, decade.

   5. EGElad Gil28:30

      Are there any dumb versions of that? So I, I, I continue to just be struck by the Palisades village, basically, you know, a guy shows up, he sprays it with flame retardant, and he saves this whole complex-

   6. BCBill Clerico28:42

      Yeah.

   7. EGElad Gil28:42

      ... right in the middle of wh- everything else burned down.

   8. BCBill Clerico28:44

      Yeah.

   9. EGElad Gil28:44

      And so, you know, why aren't there just tanks of f- of flame retardant that citizens can go and start using in the context of a fire or, you know, really simple distributed cheap infrastructure?

   10. BCBill Clerico28:53

       Honestly, homeowners should invest in that themselves, in, in my opinion. You know, I have, at my place up in Mendocino, I've got probably 20 gallons of barricade gel and, you know, if there's ever an issue, I'm gonna spray my house down. And so I think that's part of it. Some of the large insurers actually have private services that will come do structure defense. One of the issues here in LA was it just happened so quickly that there wasn't time for those folks to sort of get there, but there, there are solutions like that. And the departments themselves have those capabilities as well, um, you know, to, to, to do that. And so, so yes, and I, I think there's a little bit of, you know, there's no reason someone shouldn't have 20 gallons of that stuff and an applicator and a fire pump in their garage if they're living in the wild under interface.

   11. EGElad Gil29:32

       And then if we wanna think now about recovery, so

10. 29:35 – 34:29

    Accelerating Los Angeles’ recovery

    1. EGElad Gil29:35

       obviously the fires are still unfortunately raging while we're having this conversation-

    2. BCBill Clerico29:38

       Yeah.

    3. EGElad Gil29:39

       ... but we think out six months, 12 months, how do we optimally help accelerate the recovery of, uh, Palisades or other parts of LA that are affected? Is it building code changes and sort of review processes? Is it, I don't know if there's, like, some toxic environment left behind that needs to be cleaned up. Like, how do you, how do you think about remediation in as rapid of a timeframe as possible and what are the components of that?

    4. BCBill Clerico30:02

       Yeah. It's a good question. And, and this is probably a little bit less in my area of expertise, but, you know, certainly after large fire incidents, there's cleanup that's needed. And, and a lot of, there are a number of chemicals from firefighting chemicals, from housing, you know, all this, this is kind of nasty stuff that needs significant cleanup. I do think we should seize this as an opportunity to rebuild the right way, right? Like, the Palisades is a beautiful place. People are gonna wanna live there. We should build it, rebuild in a safe way. And there's gonna be pushback. A lot of these houses were not insured or underinsured and so it's gonna be very expensive to rebuild. Rebuilding to a higher standard is gonna be, um, you know, difficult, but if we don't do that, we're just setting ourselves up for this to happen again. And so, you know, my vote would be, um, that we really take the, the sort of building code opportunity really seriously when all this construction does happen.

    5. EGElad Gil30:49

       But it's interesting because almost all the problems that you mentioned seem to be regulatory and policy problems.

    6. BCBill Clerico30:53

       Yeah.

    7. EGElad Gil30:54

       We're overburdening people with the ability to clear-... out dense forest. We're overburdening insurance companies so they can't actually insure these houses. We're overburdening basically every aspect of the system. This just sounds like more overburdening.

    8. BCBill Clerico31:06

       For sure. Yeah.

    9. EGElad Gil31:07

       And, uh, and by the way, I'm not disagreeing with your point.

    10. BCBill Clerico31:09

        Mm-hmm.

    11. EGElad Gil31:09

        I guess it's more a question of how do you make it easier to do things versus harder?

    12. BCBill Clerico31:13

        To me, the real answer, which I think is, um, harder, but probably the real answer, is actually to have the insurance companies... Create a actual free market for the insurance companies where they can say, "I will only insure your house if you do these things," right, and actually use market forces to drive behavior.

    13. EGElad Gil31:29

        But that's putting it on the, the citizens. What should the city be doing to protect its people?

    14. BCBill Clerico31:35

        Yeah.

    15. EGElad Gil31:35

        How do you create a safe and good environment for the people who are paying you taxes?

    16. BCBill Clerico31:40

        I think that is, uh, you know, investing in the infrastructure and, you know, a real serious look at fuel management on the outskirts. Like, there's- there's no reason there shouldn't be a really significant fuel project around these towns and- and communities. In- in, uh, Lake Tahoe, during the Caldor Fire, there was a lot of fuel management done, which actually saved South Lake Tahoe, a lo- a lot of people think. So, like, that- that can really work. It's actually really not that expensive. It just requires sort of, like, the political will to do it. So, things like that, I think, are essential.

    17. SGSarah Guo32:08

        Bill, how do you think that happens, right? Because you- you described, um, forest management, uh, like density management policies and controlled burns as just very unpopular.

    18. BCBill Clerico32:21

        Yeah.

    19. SGSarah Guo32:21

        Some set of people are going to change their point of view-

    20. BCBill Clerico32:24

        Yeah.

    21. SGSarah Guo32:25

        ... in the LA area. What do you think is the mechanism of action that it becomes popular enough that regulators change their point of view here? Is that a propaganda campaign from a single politician? Like, uh, what- what- what's the driving force?

    22. BCBill Clerico32:38

        I wanna create, like, Smokey the Bear 2.0, which is in- instead of talking about putting out wildfires, and, like, how does Smokey become an advocate for- for more fire, for- for healthy fire, for- for controlled burns? But, like, I think unless we can really make that point to people, like, the behavior won't change. I think politicians ultimately just do what they're... what people want them to do, and, um, you know, Florida's figured it out. California has not. And it's not just a red/blue thing. You know, there's very famous case up in Oregon where a local Republican sheriff arrested a US Forest Service employee for doing a prescribed burn. It is deeply unpopular to- to light things on fire next to people's properties unless it's done sort of rightly and with this sort of... with this right approach. That's why I'm, like, personally pretty focused on how do we change hearts and minds around prescribed fire and- and teach people that it can be safe and that it's essential? Uh, and if we don't do that, like, we're just gonna be picking some new politician to blame the next time something burns down.

    23. SGSarah Guo33:34

        Well, it seems like a... uh, like a- a pretty clear trade-off, right? Because there's... You know, safer than uncontrolled wildfire-

    24. BCBill Clerico33:42

        Yeah.

    25. SGSarah Guo33:42

        ... in giant urban area eight times the size of the Chicago fire, right? Like, it- it's kinda... You can take your pick.

    26. BCBill Clerico33:48

        Yeah, the forests are gonna burn. You know, we can- we can do it on our terms or they can do it on their terms, but that's the message, I think, we need to sort of get through, and unfortunately, wildfire is just infrequent enough that people forget, you know? It's sort of like, "We're gonna put this fire out," like, "We're gonna... There'll be a shift in the El Niño/La Niña pattern. LA will get a bunch of rain next year. We'll be dealing with mudslides. We'll think about other stuff," and then, you know, it'll be in... Six years from now, we have another one of these incidents, right? And so, how do we sustain that, you know? I think that's, like, the- the really hard part. Part of what I'm trying to figure out is how do we create a cultural movement around more timber, more, uh, fuel management and make that easier and just sort of part of who we are?

    27. EGElad Gil34:27

        If you were to do one thing as a homeowner

11. 34:29 – 37:57

    Actions homeowners, insurance companies, and governments can take

    1. EGElad Gil34:29

       to protect your house going forward, what- what would you do?

    2. BCBill Clerico34:33

       Um, I'd probably just defensible space. There's sort of this concept of zone zero, which is the first five feet around your- your structure. That should be clear of any flammable materials. It is not in most houses. There's landscaping and azalea bushes or whatever. Um, and- and... But if you can remove that, um, that has a pretty significant impact on your home's, uh, propensity to burn. Um, probably the next thing would just be, uh, a good water source so that, again, it can be attractive for, um, a fire department to, uh, to actually defend your home. If you have- if you have defensible space and a good water source, um, you're- you're in the top quartile.

    3. EGElad Gil35:11

       And then, I guess, uh, if you were to do one thing to help expedite rebuilding in LA, is it just a change to the permitting process for reconstruction or would it be something else?

    4. BCBill Clerico35:22

       You know, what if you offered a fast track approval if the home... You know, maybe you don't change the building code but, you know, if the home met a higher standard, then you would... You fast track approval. You get two-week approval instead of six-month approval. I- I'm not sure what the approval pro- process is in LA. Here in San Francisco, it's years (laughs) . Um, but if we could offer incentives for people to rebuild safely, that feels like a good use of time and taxpayer dollars.

    5. SGSarah Guo35:46

       Maybe one last question for you since we're almost out of time, Bill. Um, you know, we are still at this 0% containment level. Like, how does that change?

    6. EGElad Gil35:56

       Yeah.

    7. SGSarah Guo35:56

       When does this become something under control?

    8. BCBill Clerico35:58

       Honestly, I think three things stop large wildfires. The weather changing, the ocean, or really large massive aircraft, uh, dropping... You know, jets dropping huge amounts of retardant. You can't drop huge amounts of retardant in neighborhoods. It's too destructive and disruptive, so you can't do that. The ocean is pretty far away from some of these fires. It stopped it in the Palisades, but I think it's a lot of structure defense, and it's, um, riding out the- the- the weather change.

    9. SGSarah Guo36:25

       Can I ask, uh, like, uh, perhaps a last triggering question?

    10. BCBill Clerico36:29

        Sure.

    11. SGSarah Guo36:29

        What would a- a more authoritarian country do?

    12. BCBill Clerico36:33

        Aggressive restrictions on where homes can be built and- and how they are- they are built. I think there would also be just a lot more surveillance. Like, can you... If you can detect fires quickly, um, you can respond more quickly. So, I think that's probably another- another big one. Those are at least the two things that come to mind for me, is, uh, yeah, being much more restrictive on how people build.

    13. EGElad Gil36:52

        If you had a lot of surveillance, you should be able to pick up arson really fast, too.

    14. BCBill Clerico36:55

        You know, I- I actually think there's a really big national security issue here around wildfire that doesn't really get talked about. But, like, you know, okay, one thing to do it to a neighborhood, but what about a military base? You know, what about a nuclear power plant? And not just sort of the sensitivity of these sites, but also, like, you know, it's one thing to have three or four fires, but what if there were 30, you know? And so, at- at what point does the system get overwhelmed? And it doesn't require all that much to do that. And so I- I think, you know, taking the national security aspect of this seriously, to me, is incredibly important. And I- I think we're- we're- we're just not. There's a part of me that unfortunately waits for the day that that's gonna be something really significant.

    15. SGSarah Guo37:32

        Bill, thank you for doing this, and, uh, you know, we're thinking about everybody in the LA area.

    16. BCBill Clerico37:36

        Thanks for having me on. (instrumental music plays)

    17. SGSarah Guo37:39

        Find us on Twitter @nopriorspod. Subscribe to our YouTube channel if you wanna see our faces. Follow the show on Apple Podcasts, Spotify, or wherever you listen. That way, you get a new episode every week. And sign up for emails or find transcripts for every episode at no-priors.com.

Episode duration: 37:57