In 1852, the official seal of the newly-established San Francisco Gas Company bore the words fiat lux– let there be light. A century and a half later, the time has come to say “lights out” to its successor, the company we now call PG&E.
California’s energy history has always been a fight between those who seek to provide power as a public good and those who seek to exploit it for personal profit. PG&E’s current bankruptcy, caused by its negligence in sparking deadly wildfires across California, is only the latest calamity in a run of crises stretching back over a century. Earlier failures include the 2010 San Bruno pipeline explosion, the mass blackouts of 2001, foot-dragging on green power from the ‘70s onward, and the price gouging of the ‘20s and ‘30s.
It’s no accident that PG&E has failed us. As an investor-owned utility, PG&E’s private imperative to maximize profits for stockholders is in perpetual conflict with its public mission to provide universal, safe, and reliable power. State and federal authorities have tried to ensure access to electricity and to mitigate the abuses of its monopoly power. But regulations haven’t been enough to protect Californians from PG&E’s predations and negligence. It’s time for us to fundamentally rethink our electric system.
The history of the electricity industry in the United States suggests a path forward. The best way to guarantee safety and reliability, sustainability and affordability, employment and democracy is for California to take over PG&E’s infrastructure.
A History of the Grid
The US energy grid has always been a battleground between public interests and private profit. It was clear from the get-go that some kind of public oversight for this essential good was necessary, but the debate about what shape that should take has raged for over a century. Today, a failed system, emerging technology, and a changing climate are forcing us back once more to the drawing table. The past shows us what hasn’t worked — and what might.
From the First Flashes…
During the first few decades of consumer electricity, hundreds of privately-owned local utilities like SF Gas built power plants and distribution networks in and around major cities. In northern California, early gas-light companies like San Francisco Gas were soon superseded by those providing both gas and electric service, culminating in the creation of Pacific Gas and Electric in 1905. Public co-operatives and municipal utilities sprang up in rural areas where electricity wasn’t profitable enough to attract private investment.
But that didn’t last long. By the early 1930s, nearly three-quarters of investor-owned utilities in America, including PG&E, were controlled by eight huge utility holding companies.
The monopolization of the private energy market brought widespread abuse, corruption, and high rates for consumers. Some municipalities fought back and built successful public utilities, but not without taking casualties. Sacramento’s municipal utility was established by voters in 1923, but PG&E held it hostage in the court system for over two decades.
When federal law compelled San Francisco to establish some form of nonprofit power in exchange for approval of the Hetch-Hetchy dam project, PG&E torpedoed implementation attempts by bankrolling opposition campaigns through the 1930s. Seattle’s mayor, the reformer George Cotterill, observed at the time that “the idea of municipal ownership was denounced as populist, socialist, and otherwise dangerous” by banks and utilities.
In 1932, reformers finally amassed enough political power to elect someone willing to stand up to the giant holding companies. Franklin Roosevelt railed against private utilities and their “selfish purposes” on the campaign trail. Once in office, he pushed Congress to create the Tennessee Valley Authority (TVA)— a federally-owned utility covering a swath of the mideastern United States. Besides providing power at affordable rates, the TVA created thousands of jobs, helped establish organized labor in the electricity industry, and jump-started the modernization of the Tennessee Valley. It’s still federally-owned to this day and provides power to approximately eight million customers. Meanwhile, the entire state of Nebraska transitioned to public power between 1930 and 1949. It remains the only US state without privately-owned utilities.
Reformers envisioned the TVA as a starting point for public ownership of electrical utilities nationwide. That dream was never realized, but, FDR’s administration did break up the large holding companies into pieces manageable by state regulators. Thus began a relatively successful fifty-year-long truce between capital and the public. Utilities were allowed to retain their monopolies at the state level, but under the watchful eye of regulators like the California Public Utilities Commission (CPUC).
This arrangement proved stable, but not impregnable.
… to Rolling Blackouts
In response to the oil crises of the 1970s and growing environmentalism, the federal government created markets for renewable energy generators to sell power to existing utilities. Unlike utility-owned generators, generators in these markets were mostly outside the reach of state regulators.
Neoliberals took note. Bowing to corporate pressure in the early 90s, Congress and the H.W. Bush administration expanded these markets to all independent power generators. Federal rules established that all sales transacted through these markets were inherently fair to the public, eliminating the requirement for direct oversight.
In 1994, with encouragement from a company named Enron, the CPUC called for California to deregulate its electric system and create its own energy market. Free-market zealots claimed that competitive markets would provide cheaper power for consumers; the CPUC took their word for it. Legislators were convinced too. They began transitioning California to a competitive wholesale electricity market in 1996. PG&E consequently sold off a substantial portion of its generation capacity, believing it would be unable to compete when a glut of cheap power flooded the new market.
But there was a fatal flaw in the fairy-tale reasoning that Enron sold to the CPUC. It turned out that unregulated generators were only interested in short-term profits, not the long-term investments in safety, training, and maintenance necessary for sustainable low-cost electricity. Enron CEO Jeff Skilling famously declared that energy companies should “cut jobs ruthlessly” because people “gum up the works.” Taking advantage of lax regulation, Enron and other traders concocted elaborate schemes to buy up and hoard power, causing prices (and their profits) to skyrocket in 2000-2001.
No matter how high prices got, PG&E was forced to pay them because it had already sold off many of its own power plants. State regulators, however, retained control of retail pricing and didn’t allow the energy giant to pass its artificially high procurement costs on to ratepayers.
PG&E bled out in a matter of months. Rolling blackouts, bankruptcy, and a gubernatorial recall election ensued. The state of California spent enormous sums to buy long-term power contracts that finally stabilized wholesale prices and enabled PG&E to keep the lights on during its bankruptcy. These long-term contracts locked in high rates for many years.
Despite the clear failure of deregulation and the cost to Californians, the question of how to properly regulate electricity was never seriously revisited. Wholesale markets still exist. Responsibility for grid stability is still splintered across the CPUC, regional and federal bodies, and monopoly utilities.
Fanning the Flames
Distributed renewables may one day make the grid modular and less reliant on long-range transmission. For the time being, however, we must contend with the greatest known danger of moving electricity across hundreds of miles: wildfires. This is no small risk. According to the Wall Street Journal, PG&E’s equipment has caused about a fire per day in recent years.
Climate change has intensified the wildfire threat, but PG&E’s failure to manage flammable vegetation growing around power lines is the real culprit. The CPUC and California courts have been investigating PG&E for tree-related safety violations since at least the early 90s. Memos uncovered in 1997 show PG&E executives praising managers for cutting corners on fire-preventing vegetation management — work PG&E outsources to bottom-dollar contractors with high turnover.
PG&E’s safety record in other domains is equally terrible. Audits undertaken in the aftermath of the deadly 2010 San Bruno pipeline explosion outline how PG&E spent money earmarked for safety measures on executive pay. And a shrinking fraction of the money the CPUC asked PG&E to spend on under-grounding high-risk lines has been used for that purpose over the course of the past decade.
The danger for PG&E is that California courts have consistently found that utilities can be held liable for damages resulting from their equipment whether or not reasonable safety precautions were followed under the legal principle of inverse condemnation.
In the wake of the 2017 fire season, PG&E coordinated a legislative offensive to override the courts and exempt themselves from inverse condemnation damages. Then-Governor Jerry Brown supported their campaign, citing the risks that bankruptcy posed to ratepayers. PG&E’s proposed legislation ultimately failed, but a compromise bill called SB 901 was approved by a wide margin in the fall of 2017. SB 901 allows PG&E to increase rates on consumers to pay for damages incurred in cases where adequate safety precautions were in place. But even if safety precautions were not followed, PG&E is still allowed to raise rates to prevent bankruptcy.
Critics of SB 901 characterized it as a bailout and a regressive tax. Proponents claimed it was a necessary compromise to avoid a bankruptcy. Both groups sought to avoid a repeat of the 2001 bailout. Neither got what they wanted — the bill passed, but PG&E threw in the towel anyways. The nation’s largest utility entered bankruptcy on January 29th, 2019.
The recurrent failures of unregulated electricity markets show that we need public oversight of this essential good. Strong regulation of monopoly utilities ensured affordable and reliable energy between the 1940s and 1980s, but neoliberals were able to take advantage of changing technology to upset that delicate balance. And now climate change means that failure costs more than money — it costs lives.
We need a new framework that can ensure safety, provide accountability, lower costs for everyone, invest in clean energy, and strengthen economic opportunity for all.
And now we have a chance to get it.
PG&E’s bankruptcy is one of the most complex cases to ever face the courts. An array of stakeholders — creditors, regulators, legislators, utility executives, municipalities, organized labor, fire victims, and advocacy groups — are all squaring off, with California’s future hanging in the balance. But the underlying conflict remains much the same as it was a century ago: will electricity be controlled by corporate players seeking to exploit an essential service for private profit, or by public institutions for the common good?
Private Profit: PG&E Maintains the Status Quo
If PG&E has its way, legislators will maintain the status quo and approve a ratepayer-funded bailout. This would be a disaster for ratepayers and the environment.
It may take some time, but PG&E will emerge from bankruptcy. By most estimates, the company has enough assets to cover their losses and continue operations. The bankruptcy is in fact a tactic to allow PG&E to consolidate a single legal defense against those claims, pay less to fire victims, and pressure the state to double down on bills like SB 901. It may also allow PG&E to escape long-term power-purchase agreements with green suppliers. If the courts allow this, investors will likely downgrade the credit rating of new green infrastructure and slow down decarbonization.
In the absence of major reforms, ratepayers will ultimately pay for the current damages. No internal restructuring, board shakeup, partial sell-off, or increase in CPUC oversight can avoid the need for rate increases. The CPUC has already allowed PG&E to issue $5.5 billion worth of life-support bonds that will need to be repaid. And, incredibly, other private utilities are already lobbying the CPUC to allow them to raise their own rates and profit margins in light of decreased investor confidence. A repeat of the aftermath of the 2001 energy crisis is all but inevitable.
The court will also have to contend with the possibility of future bankruptcies. PG&E may be prevented from exiting chapter 11 until something is done to address long-term exposure to fire damages. This may force California into expanding liability protections for monopoly utilities à la SB 901 or annulling inverse condemnation. Either way, the result would be the same: a legal framework that forces the cost of future disasters onto the victims in order to protect the culprit.
While most lawmakers in Sacramento seem to have accepted this fate, some want to prevent it. State Senator Jerry Hill has already introduced a bill — SB 549 — that would prevent PG&E from raising rates without approval from the legislature. This power is currently held by the CPUC, which Hill considers too cozy with PG&E.
Cozy or not, the prime directive for the CPUC is to keep the lights on, so they ultimately have little choice but to give PG&E the money required to get the job done. Well-intentioned as it may be, SB 549 only moves the problem from one place to another. The legislature will be held hostage with the same ultimatum as the CPUC: raise the rates or the lights go out.
Keeping rates low is simply not an option without larger reforms.
Public Retail: Community Choice Expands
Deregulation was sold to the public as a way of increasing consumer choice in power purchasing, but real choice only came when California legally established community choice aggregators (CCAs) in 2002. CCAs are regional nonprofit entities which procure wholesale electricity on California’s energy market and sell it to consumers, who are free to buy either from them or a traditional utility. The CCA takes care of buying and selling power, but it still relies on the utility’s transmission and distribution network to ship the energy to consumers.
Despite PG&E’s failed $45 million campaign to defeat CCAs via Prop 16 in 2010, CCAs continue to grow in popularity. Nineteen CCAs currently operate in California, including San Francisco’s Clean Power SF. Dozens of other municipalities are considering starting their own CCA programs.
One of the advantages of CCAs is that local communities can opt for a greener energy mix than what the utility would otherwise provide. Though both CCAs and utilities are equally mandated by California’s renewable portfolio standards to source an increasing percentage of their energy from renewables, CCAs are smaller and more accessible to decarbonization activists, who have pushed them to purchase more renewables than legally required.
An expansion of community choice programs would be a fast and effective way to combat rate rises, but it’s not a magic bullet. People enrolled in CCAs don’t buy energy from PG&E, so they are protected in part from rate rises. And networks of community choice activists are already in place across the state. They have a slew of successes to point to: rates for CCAs have remained competitive with PG&E’s and their energy mix is greener. If CCAs continue expanding, they could take over PG&E’s retail sales market and leave behind a “wires-only” utility responsible only for transmission and distribution.
Besides lowering costs and promoting renewables, CCAs provide the intrinsic benefits of democratic control over power purchasing. Local control may incentivize accelerated development of distributed energy resources like rooftop solar and battery storage. These technologies reduce the need for fossil-fuel plants. They also make the grid less reliant on long-range transmission lines, thus reducing fire risk and increasing local resilience. Community control may also provide local accountability, foster transparency, and help create a culture of participatory energy democracy.
Detractors of CCAs worry that they are too financially insecure to provide stable power. The novelty of CCAs impacts their credit ratings and ability to enter into long-term power purchase agreements. Without long-term agreements, CCAs would be even more vulnerable than PG&E to market manipulation, and incapable of driving future investment in renewables. Luckily, some CCAs have found financial instruments that help ensure the stability of long-term contracts. An increasing amount of CCA power now comes through contracts spanning ten to twenty-five years.
But CCAs by themselves cannot address all the problems with California’s energy system. First and foremost: not all communities have a CCA. Sustained activism and policymaking can provide incentives to create CCAs where there are none currently, but for the time being, millions of Californians still pay for PG&E’s mistakes.
Nor do CCAs protect ratepayers from all of PG&E’s liabilities. At present, PG&E is allowed to charge CCA customers for the cost of electricity that the utility purchased “on their behalf” in long-term power purchase agreements. In effect, CCA customers are locked into paying a for-profit company for power that they will never use. And PG&E also charges CCA customers for transmission costs. A wires-only PG&E might still be allowed to raise these fees to cover liabilities.
A wires-only PG&E also leaves them controlling the asset that caused the current crisis. It’s possible that the utility will be able to manage the safety and reliability of transmission grid better if it’s their only business, but it’s more likely that they will continue profiteering. PG&E’s new board is stuffed with Wall Street financiers and ex-CEOs; even Governor Newson recognizes that this “raises concerns” they won’t represent the interests of Californians.
Local Public Power: Municipal Utilities Rise Up
Understandably, many activists balk at the idea of letting PG&E keep what has proved to be a weapon of mass destruction. They suggest creating local municipal utilities to take over distribution as well as power purchasing.
Municipalization is one of the oldest models of public electricity. A number of examples exist in California, including in Sacramento and Los Angeles. The arguments for “munis”, as they are called, parallel those for CCAs: lower rates are a particularly strong feature. Sacramento’s municipal utility, for instance, charges 33% less than PG&E. The reason is simple: like CCAs, municipal utilities don’t profit off their customers.
Not all munis are created equal. Some are government departments like any other, some report to an independent public body, others are publicly-owned corporations entirely outside the local government. The jury is still out on what provides the most benefit. Full integration with the government can result in short-term political meddling with the utility, but publicly owned corporations are less directly accountable to citizens.
No system of governance guarantees optimal management, but evidence suggests that placing munis under the control of an independent but directly elected body strikes the right balance. In Sacramento, this model allowed community members to take control of the utility and stop it from reinvesting in a failing nuclear power plant. Voters may not always be engaged with energy politics, but direct election lets the citizens take charge when public consensus arises.
Whatever the structure, getting munis off the ground is not easy. The first challenge is taking control of the infrastructure, which means either negotiating a sale or fighting an eminent domain battle. Sacramento spent two decades defending against PG&E’s challenges. Few municipalities have the funds and expertise to stand up to such a behemoth.
The hurdles don’t stop there. Organizing an entire utility from the ground up on a city budget can take its toll. Munis often are greener than private utilities, but it takes time and economies of scale to get there. When Sacramento finally got the lines from PG&E, they were a disorganized mess that took another decade to modernize. Boulder CO voted to municipalize in 2010 in order to accelerate decarbonization, but now lags behind in renewables relative to the private utility they declared independence from.
Breaking up ownership of California’s energy infrastructure could also mean weakening one of its strongest unions. IBEW 1245 represents over 12,000 PG&E employees who do the hard work of keeping their infrastructure as safe and reliable as management allows. Even if municipal utilities retained these experienced workers, IBEW would have to negotiate separate contracts in each locality, and it’s not clear how benefits would transfer over. This issue has driven a wedge between union and energy activists in the past. If municipalization moves forward, complicated provisions would be necessary to ensure justice for workers.
Finally, the biggest problem is that municipalization does nothing for people in regions where it’s not implemented. It thus risks balkanizing the activist networks fighting against PG&E by providing solutions only for some. Furthermore, municipalization is more likely in cities, which would leave PG&E in control of the oldest and most dangerous infrastructure in remote areas where disenfranchised populations lack the political capital to organize their own opposition. Larger reforms would be necessary to prevent the formation of a two-tier energy system.
Public Power for California
Municipalization and wires-only solutions could solve some of California’s energy problems, but not all. The best option is a statewide public utility, which would eliminate the cost of payouts to shareholders and prioritize safety and public service instead, while also filling the gaps that local solutions leave. Public power would reduce rates for all Californians in PG&E’s service area. It would stabilize precarious rural infrastructure as well as the relatively safe urban grid. It would directly invest in renewable infrastructure at-scale while encouraging local decision-making about green procurement, generation, and distributed resources. It would ensure a just transition for current PG&E employees, keep bargaining units together, and create hundreds if not thousands of new high-paying union jobs. It would ensure democracy and public accountability through independently elected oversight.
Forming a public utility is no small task. All of the logistical challenges of municipalization are also challenges for statewide public power. But unlike most cities, California has the resources to go toe-to-toe with PG&E. The total cost of PG&E’s assets and liabilities are within what the state could raise with bonds. Costs to taxpayers could be offset by lower electricity rates in perpetuity. This is money put towards a mortgage, not rent.
A buyout does mean that California would assume liabilities for the 2017 fires. But there isn’t an alternative — if taxpayers don’t pay, ratepayers will. The difference is more than semantics: as ratepayers, we have no say in how we pay, but as taxpayers, we do. If rates rise, the poor pay disproportionately more of their income than the rich for electricity, but if California takes on the liability, the public can democratically ensure that the costs don’t fall on the most disadvantaged.
No system is perfect. There will still be fires to contend with even if we establish clean public power. Sharing the liability means that Californians will have to decide how to provide mutual aid and compensation to victims. That’s a good thing. It’s time to stop hiding behind PG&E and the CPUC. As Californians, we need to come together and make those hard choices for ourselves or they will be made for us in favor of the rich.
The logistics of the infrastructure transfer will be complicated, but not intractable. The naïve approach would be to buy a majority of PG&E shares and force a selloff to the new state utility. This would, however, require a constitutional amendment — California is currently prohibited from owning shares in private companies. PG&E won’t willingly liquidate its assets, but the bankruptcy could force consideration of a buyout offer that would ensure payment to PG&E’s creditors with minimal fuss. Alternatively, if the bankruptcy court decides against the state, California could use eminent domain to acquire PG&E’s infrastructure for a fair market price. This would surely raise legal challenges, but the state is in a much better position to litigate than municipalities would be.
California should take lessons from municipal utilities and structure the utility as a state entity under the independent oversight of a democratically elected board. Board members should be elected regionally to minimize the impact of statewide special interests. All revenue should be either reinvested in the grid, passed down as incentives to community choice programs, or put against lowering rates for Californians. This prevents shortsighted politicians turning the utility into a source of funds for their pet projects. Meanwhile, the community choice system would remain in place as a foundation for local energy democracy, experimentation, and grid decentralization.
Public power would ensure that California meets its decarbonization goals. While CCAs continue to build strength, the state utility would have the institutional backing to immediately take on existing long-term power purchase agreements, negotiate new ones, and invest directly in large-scale green generation projects. California would be in direct control of power purchasing at all levels, and could use its weight in the energy markets to encourage greening without adding regulations.
If Californians are looking for a Green New Deal, this is it. Statewide public power would mean a just transition for all of PG&E’s employees. It would provide an opportunity to keep the IBEW bargaining unit together and expand it by adding new high-paying jobs across the state as part of investments in grid safety and modernization. California will need more inspectors, tree crews, and other personnel to reverse decades of neglect. Jobs would also be created though market investments in green technology and distributed energy resources.
This is power to the people and for the people.
The Path to Public Power
The first step towards statewide public power is to build a coalition that transcends previous boundaries. It will take a united front of consumer advocacy groups, clean energy and CCA activists, municipalists, fire victims, labor unions, grid experts, and progressive political organizations to penetrate the noise in Sacramento. A broad coalition will ensure that nobody is left behind in crafting a strong policy proposal.
Finding a legislative sponsor is the next step. Unfortunately, Sacramento is dominated by big utility lobbyists and the small ideas they peddle. Even PG&E’s opponents in the statehouse have so far been lukewarm on any proposal that tackles the problem head-on. Part of that trepidation is understandable– anything that makes big waves carries some risk. But California can’t wait. We’re staring down the double barrel of rate increases and the 2019 fire season.
It may take continued public pressure and the looming threat of a bailout, but sooner or later we will craft a serious public power proposal in Sacramento. Nevertheless, a legislative majority for public power is unlikely to materialize. PG&E spends millions in campaign contributions to prop up friendly votes in the statehouse.
That is why a bill is just the beginning. Even if it never comes to a vote, a public power bill would start to shift the thinking in Sacramento. It would give the public power coalition access to further legislative expertise and staff. It would raise public awareness and expose politicians who aren’t willing to do the hard work needed to protect their constituents. And it would set the stage for a successful ballot initiative.
Public power is a winnable issue. We know voters can beat PG&E because they’ve done it before. Armed with nothing but sound policy and $200,000 in 2010’s Prop 16 race for the future of CCAs, activists squared off against PG&E’s $40 million — and won. And that was before the fires obliterated any public trust PG&E had left.
History has already shown us what happens when the electric grid is run for profit, so voters know that public power isn’t a radical change that they should fear. Public power is right at home with other big ideas that Californians are already clamoring for — ideas like Medicare for All, the Green New Deal, and immigration reform.
Spark the Change
We don’t have to settle for skyrocketing electricity rates and smoke-filled skies. Another world is possible. A world where energy is safe, affordable, and clean. Where power is local, publicly accountable, and creates jobs. A world that can rise from the ashes of PG&E’s fires.
A world where the power belongs to you and me.