Shocking Developments: Public Ownership of Pacific Gas & Electric

Photo by Chris Leipelt (Unsplash)

Written by: Oliver Eccleston

Edited by: Adam Terragnoli and Elisabeth Lembo

The Kincade Fire

Destroying homes and ruining livelihoods, the late-October Kincade Fire ravaged Sonoma County, California. California’s Department of Forestry and Fire Protection (Cal Fire) managed to contain the blaze – which since October 23rd had destroyed around 77,758 acres and 372 structures – by November 6.[1] Although the source of the fire cannot be determined with certainty, evidence suggests faulty jumper wiring on a transmission tower belonging to Pacific Gas & Electric (PG&E) sparked the blaze.[2] Yet another mistake in a long line of failures, this wiring error may spell the end of PG&E. Having suffered the company’s shortcomings for years, California legislators – spearheaded by Progressive Governor Gavin Newsom – announced their intent to takeover PG&E should the company fail to rectify their catastrophic mistakes. In a recent public statement regarding PG&E and the fire, Gov. Newsom’s stance was simple – “If the parties fail to reach an agreement quickly… the state will not hesitate to step in”.[3]

The Current State of Pacific Gas & Electric

Established from the conglomeration of several utility companies in San Francisco, PG&E has formed the backbone of Northern California’s energy grid for over 100 years. Although a flagship for privately-owned utility grids across the nation, PG&E was highly regulated for most of its existence and has been, since 1911, been overseen by the California Public Utilities Commission (CPUC) as a state-recognized monopoly within an extremely managed market.[4] However, following the mass electricity market deregulation enacted by the Clinton Administration, PG&E entered into competition with energy giants like Enron and GenOn. This new wave of competition led to an unpredictable energy market characterized by oscillating prices. Already dealing with mass fluctuations producer-side, PG&E – under new CPUC regulations – was moreover forced to sell to consumers in a fixed price market, which eventually culminated in the California Electricity Crisis. Already struggling within a dysfunctional and variable energy market, PG&E was ill-equipped to deal with the additional market stress caused by a common California problem: drought. Unable to buy additional energy, the provider eventually caused several rolling blackouts, with problems culminating in PG&E filing for Chapter 11 bankruptcy.[5] After being bailed out, at significant cost, by the State of California in 2004, PG&E re-entered the public arena in the same year. Already on thin ice with California Democrats due to the company’s role in ousting Governor Gray Davis during the 2003 gubernatorial recall election, state legislators finally ‘dropped the hammer’ on PG&E after another series of disasters, including a second filing of Chapter 11 bankruptcy as a result of additional fires and blackouts. Cited “as the possible cause of at least five different wildfires,” PG&E has been criticized by a variety of community leaders for its failure to respond to fire hazards and for its profiteering nature. Of the many solutions proposed to rein in this faltering energy giant, it is the idea of collective ownership that inspires the most interest amongst residents and legislators alike.[6]

Collectivizing Energy

The collective-ownership of PG&E might take the following three forms – Cooperativization, Municipalization, and Nationalization. They are as follows:

Cooperativization – Described by America’s Electric Cooperatives as “Private, independent, [and] non-profit,” the creation of utility consumer co-ops would provide a market-focused alternative to the dismantling of PG&E. By partitioning the assets amongst smaller, more localized associations, co-ops would be able to provide “safe, affordable and reliable power” to locals, creating a clear link between the generation of power and its use in a specific community.[7] Although some Californians will balk at the idea, citing the absence of actual property-ownership and its attendant benefits, supportive policy makers hope that the idea of directly owning one’s utility provider will curb corruption and promote local investment.[8]

Municipalization – A public-sector strategy with a local element, municipalization is a common path for legislators to take. Using the same asset division strategy as cooperativization, municipalization would involve cities “buy[ing] out the electrical infrastructure within their borders,” and exerting control through locationally-staffed boards and public agencies.[9] Similar to agencies in Central and Southern California like the Los Angeles Department of Water and Power (LADWP), Sacramento Municipal Utility District (SUMD), and Burbank Water and Power (BWP), these “not-for-profit organizations” would be “owned by the citizens” yet governed by the municipality. This allows for consistent community oversight with the ultimate aim of providing “reliable, affordable and sustainable… electric services” and operations that exist “in the public interest, for the benefit of the residents and businesses” rather than for the benefit of shareholders in the form of profit.[10] Blueprints and examples outside of the Golden State include Nebraska’s “166 different community-owned utilities,” which provide “Public power rates… lower than the national average.”[11] With “democratic public ownership” as its central goal, municipalization stands as the ideal standard between decentralized cooperativization and state-administered nationalization.[12]

Nationalization – Although a strategy with historical precedent, nationalization would be a colossal move for a state which has tended to promote private utilities. This alternative would put “long-term planning” — technological and environmental — directly in the hands of Sacramento policy makers, resulting in the creation of “one big public utility district that would subsume PG&E completely.”[13],[14] With a variety of models – Hydro-Québec, Électricité de France (EDF), and Tokyo Electric Power Company (TEPCO) being but a few – California will be able to choose how far to extend nationalization. On one end of the spectrum of the ownership model would be total-state ownership. For example, with Hydro-Québec, which serves as the Province’s only utility provider, total-state ownership would require that the State of California take on the burden of sole shareholder – a position that would empower them to appoint and remove executives, set business directives, and decide utility rates. As California has been clashing with Washington and the Trump Administration for three years regarding environmental and energy policies, this model would further empower California’s wish to become “‘maîtres chez nous’ — masters in our own house,” a dream similar to those of Québec.[15] The other, less heavy-handed end of the spectrum would be majority ownership of PG&E by the State. More in line with American market sensibilities, this tactic would mirror the American Government’s 2009 auto-industry bailout of the General Motors Company, during which the treasury “assumed temporary control of GM” through the controlling of GM stocks, “provided… firms with discounted loans,” and replaced GM executives, turning the corporation into a quasi-government-sponsored enterprise reminiscent of Fannie Mae and Freddie Mac.[16]

Oversight vs. Efficiency

Following PG&E’s myriad of failures, California lawmakers are pushing for the creation of an agency or agencies that will be everything that they have claimed PG&E is not – safe, affordable, and accountable. Having been accused by Rep. Ro Khanna and other officials of “prioritizing high executive salaries and payouts to investors over infrastructure upgrades needed to operate safely,” the State hopes to remove the “apocalyptic images of suburban homes and cars engulfed in flames and nightmarish stories of residents struggling to survive amid rolling blackouts” from citizens’ minds by providing safe power through radical overhauls of current infrastructure.[17] Furthermore, many hope to transition toward a more consumer-focused, rather than shareholder-centered, utility provider with the ability to provide “cost-effective electricity services.”[18] Finally, legislators hope to curtail the profuse negligence of PG&E, a company that has been “fined… time and again for failing to trim trees or invest in brush management,” and yet continues to neglect fire prevention strategies, clarifying the necessity of bringing PGE under government oversight.[19] In doing so, boards and committees can be established that prioritize fair costs, efficient and sustainable policies, and accountability to the public through open and transparent meetings.[20]

The road to public-ownership, although paved with good intentions, is fraught with dangers. When taking over PG&E, the State must recognize that “Public agencies are equally susceptible to bungling basic administrative duties and recklessly deferring maintenance.” A variety of experienced agencies across the nation are still struggling to offer “trouble-free utilities.”[21] Furthermore, they must also acknowledge that the hope for greater sustainability will eventually and rapidly come into conflict with “ratepayer-owners’ want [for] lower bills.”[22] Alternatively, in taking over PG&E, the state will voluntarily take on the “billions of dollars” needed to “improve an electric system that many see as woefully neglected” and in need of an extreme overhaul to become safe and functional.[23]

The Future of PG&E

The State of California currently stands at a crossroads. With the voices in support of public-ownership rising throughout the state and escalating fears of another PG&E-caused fire or blackout, Governor Newsom is in a pivotal position. Although recognizing the inefficiency and failures of PG&E, with PG&E’s December 2019 $1.68 billion settlement agreement affirming this, the Governor has emphasized the struggles that will likely accompany any kind of government-led takeover of utility services; solving the crisis will not be rapid or painless, and may cost taxpayers more than expected.[24] As PG&E edges ever closer to utter bankruptcy, we still don’t know what Governor Newsom will do, but it seems clear that something must be done in an age of increasing population, energy use, and climate disruptions. If he doesn’t, many can only guess what will be left of California for future generations.

References

  1. Christina Tetreault, “Kincade Fire burns 77,758 acres, now 78% contained,” KRON 4, 3 Nov. 2019, https://www.kron4.com/news/bay-area/kincade-fire-burns-77758-acres-now-76-contained/. ↑
  2. Tara Duggen, “Kincade Fire containment grows to 72% while Ventura County fire still rages,” San Francisco Chronicle, 2 Nov. 2019, https://www.sfchronicle.com/california-wildfires/article/Kincade-Fire-containment-grows-to-72-while-14804786.php. ↑
  3. Richard Gonzalez, “Calif. Governor Seeks To ‘Jumpstart’ PG&E Bankruptcy Talks; Threatens State Takeover,” NPR, 1 Nov. 2019, https://www.npr.org/2019/11/01/775621356/calif-governor-seeks-to-jumpstart-pg-e-bankruptcy-talks-threatens-state-takeover. ↑
  4. “Company profile,” Pacific Gas & Electric, accessed 5 Nov. 2019, https://www.pge.com/en_US/about-pge/company-information/profile/profile.page. ↑
  5. Federal Energy Regulatory Commission, Findings at a Glance: Price Manipulation In Western Markets, by FERC Staff, PA02-2-000, Washington, D.C.: GPO, 2003, https://www.ferc.gov/industries/electric/indus-act/wec/enron/summary-findings.pdf (accessed 5 Nov. 2019). ↑
  6. Ivan Penn, “California Mayors Back Plan to Make PG&E a Cooperative,” The New York Times, 5 Nov. 2019, https://www.nytimes.com/2019/11/05/business/energy-environment/pge-california-mayors.html. ↑
  7. National Rural Electric Cooperative Association, “America’s Electric Cooperatives: 2017 Fact Sheet,” America’s Electric Cooperatives, accessed 6 Nov. 2019, https://www.electric.coop/electric-cooperative-fact-sheet/. ↑
  8. Lauren Paley, “What Is a Co-op Apartment in NYC?” StreetEasy, 30 Oct. 2019, https://streeteasy.com/blog/what-is-a-co-op-apartment-nyc/. ↑
  9. The Times Editorial Board, “Editorial: PG&E is California’s most troubled electric utility. Time for a government takeover?” Los angeles Times, 3 Nov. 2019, https://www.latimes.com/opinion/story/2019-11-03/pg-e-bankruptcy-government-takeover. ↑
  10. “About BWP,” Burbank Water and Power, accessed 6 Nov. 2019, https://www.burbankwaterandpower.com/aboutbwp. ↑
  11. Alexander Sammon, “Could California Take Public Ownership of PG&E,” Pacific Standard, 7 Feb. 2019, https://psmag.com/economics/could-california-take-public-ownership-of-pge. ↑
  12. Alexander C. Kaufman, “Should There Be a Public Takeover of PG&E?” Mother Jones, 2 Nov. 2019, https://www.motherjones.com/environment/2019/11/should-there-be-a-public-takeover-of-pge/. ↑
  13. Alexander Sammon, “Could California Take Public Ownership of PG&E.” ↑
  14. The Times Editorial Board, “Editorial: PG&E is California’s most troubled electric utility. Time for a government takeover?” ↑
  15. David Sherman, “Hydro-Quebec, a symbol of French pride,” The Toronto Star, 30 March. 2012, https://www.thestar.com/news/canada/2012/03/30/hydroquebec_a_symbol_of_french_pride.html. ↑
  16. “A Reflection on the 2009 American Auto Bailout,” University of Pennsylvania Wharton School Public Policy Initiative, last modified 22 March 2017, https://publicpolicy.wharton.upenn.edu/live/news/1779-a-reflection-on-the-2009-american-auto-bailout#_edn4. ↑
  17. Alexander C. Kaufman, “Should There Be a Public Takeover of PG&E?” ↑
  18. Ivan Penn, “California Mayors Back Plan to Make PG&E a Cooperative.” ↑
  19. The Times Editorial Board, “Editorial: PG&E is California’s most troubled electric utility. Time for a government takeover?” ↑
  20. Alexander Sammon, “Could California Take Public Ownership of PG&E.” ↑
  21. The Times Editorial Board, “Editorial: PG&E is California’s most troubled electric utility. Time for a government takeover?” ↑
  22. Ibid. ↑
  23. Ivan Penn, “California Mayors Back Plan to Make PG&E a Cooperative.” ↑
  24. Madeline Holcombe, “PG&E submits $1.68 billion settlement agreement to California regulators for 2017 and 2018 wildfires,” CNN, 18 Dec. 2019. ↑

Oliver Eccleston

Oliver Eccleston is studying Industrial and Labor Relations (‘22) with a Minor in Business. Along with the Review, he is an Administrative Assistant within Cornell’s Office of Community Relations, a Researcher within the Applied Moral Psychology Lab, and a Project Manager for SEGC. Prior to Cornell, Oliver attended Los Angeles Valley College in California, working for a homeless student assistance program on-campus while studying. His focuses include education, business, and labor policy, along with the conflict between individual and public interests.
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