Not only would it keep people from getting blinded during the event, it would help people to be able to see what is going on during the display. Reducing light polution is a great way for people to get a chance to see a beautiful site that very few people ever get to see.
Yes, it is in the best interest of public safety for Reykjavik to switch off their street lights tonight due to the anticipated Northern Lights display because the Northern Lights will give enough light for people who want to see. Plus, people should stay at home watching the lights. It doesn't come around often.
While everyone would love to see the Northern Lights in all it's beauty, the city could not ignore it's responsibility to public safety by plunging the city into darkness just so that people can enjoy the phenomenon. Furthermore, if they do decide to turn out the lights, they shouldn't make it public knowledge! That is just inviting trouble with a scheduled blackout!
I'm assuming that the folks in charge have a good sense of how bright the Northern Lights will be, but it's not always a certainty. They can be unpredictable, and could also appear for a much shorter duration than anticipated. If the street lights are needed for public safety maybe it's not a great idea to shut them off.