Twice Burned, Once Shy—Why Californians Should Be Wary of Bailing Out PG&E Again

The last time Pacific Gas & Electric declared bankruptcy, in 2001, its customers paid billions of dollars in higher rates while company creditors and shareholders lost little. In that case, PG&E’s losses were largely due to deregulation and marketplace manipulations by Enron and others.

The California utility’s current financial woes are a result of its own negligence. Given the dramatic changes that have occurred in the electricity sector in the last decade, the public should come first this time.

Two major shifts have already triggered a transformation of the electricity system in California, and across the country.

First, millions of former PG&E customers now get their electricity from a community-owned power agency. Enacted in the years following the Enron debacle, California’s community-choice policy allows municipalities to take charge of their own energy procurement. These local agencies better reflect local interests, including renewable energy, local power generation, and a desire to align power generation with local economic development.

By the end of 2018, nearly one-quarter of the state’s three investor-owned utility retail customers had switched to their community supplier. The state’s Public Utilities Commission estimates that more than three-quarters of utility customers could leave its service by 2030.

Second, hundreds of thousands of PG&E customers now produce their own electricity from solar on their own property. Across the state, 750,000 customers have installed solar to reduce their electricity costs, taking advantage of power production that doesn’t require extensive transmission (hardware that has proven to be a big liability for the utility).

Cumulatively, these solar installations can — at noon on a sunny day — produce as much electricity as two nuclear power plants. And with inexpensive batteries already being paired with on-site solar installations, the ability of electricity customers to be self-reliant will continue to grow.

The last bankruptcy was a fix for a policy-driven problem: botched deregulation of energy markets that allowed unscrupulous energy marketers like Enron to scam utilities by faking electricity shortages. The solution was targeted — make the utilities solvent again and repair the market. A narrow and incremental fix doesn’t exist for this bankruptcy threat; now, the cause is systemic.

PG&E has a legal liability to ensure maximum value for shareholders. That gives utility executives an institutional bias toward building big, expensive infrastructure that generates shareholder returns but is vulnerable to climate-accelerated threats like wildfires (or widespread customer-owned power generation). The fix for PG&E’s financial crisis will fail unless it addresses the utility’s bias toward deploying vulnerable infrastructure.

Some states, like New York, have tried to shift utility culture toward decentralized and distributed solutions to electricity system needs, but it’s about as easy as turning the Titanic. And when utilities have historically earned a 10 percent return (or higher) on capital for building big things, it’s likely to cost even more to incentivize them to invest in small things.

California has already deployed viable alternatives. Community-choice energy programs and customer-owned power generation have already made big contributions to carbon-free power generation, without the perverse incentive to focus on big infrastructure.

Publicly owned utilities in Missouri, Texas and Vermont have already deployed 100 percent renewable electricity systems. Sacramento’s municipal utility famously and democratically shuttered a costly nuclear plant, pioneered rooftop solar programs nearly 20 years ago, and has committed to ambitious renewable energy deployment. And industry reliability data shows that the public power system tends to have better reliability, in large part because public owners don’t shortsightedly scrimp on maintenance for better quarterly returns.

Instead of investing billions in building and maintaining vulnerable transmission infrastructure, a publicly owned PG&E could, as a grid manager, focus on the electricity system democratization already in progress. It could invest in local infrastructure that supports rooftop solar and batteries, managed electric-vehicle charging, and smart grid tools to allow customers to use clean power when it’s most available and least expensive.

Upton Sinclair famously said, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” As long as PG&E has a legal obligation to its shareholders to build big and vulnerable, utility executives are unlikely to start understanding the financial folly of the company’s business model. Maybe it’s best that they don’t have to anymore.

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John Farrell is the energy director at the Institute for Local Self-Reliance.

Twice Burned, Once Shy—Why Californians Should Be Wary of Bailing Out PG&E Again, by John Farrell, Greentech Media, January 21, 2019.

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