Last week’s historic heatwave served as a reminder of the historic fragility of the Golden State’s power system.
In the past 20 years, Northern Californians have been plunged into darkness on numerous occasions. So, when state officials warned of blackouts again last week due to surging demand, millions of people were left wondering if their electricity would once again be shut off. Thankfully, the system largely met the challenge, with power for most of the state staying on despite record-breaking temperatures on back-to-back days.
Still, the power system will face more challenges in the years to come, all while navigating a rapid transition to green energy sources. Recently, the state legislature passed Senate Bill 1020, which would require the state to use 90% clean electricity by 2035.
Meanwhile, there is a crucial concern to keep in mind: safety.
The state’s largest utility, Pacific Gas and Electric (PG&E), is striving to reform itself and make safe thousands of miles of long-ignored gas and electric lines in a drought-stricken tinder-box that constitutes the company’s sprawling northern California territory. Yet, following a dozen years of deadly scandals involving the utility’s equipment, PG&E, a government-sanctioned monopoly, has continued to limp along.
Those interested in how the utility managed to survive should pick up Wall Street Journal reporter Katherine Blunt’s new book, California Burning: The Fall of Pacific Gas and Electric—and What it Means for America’s Power Grid. The book is perhaps the first general-audience read which explains how California’s largest utility came to be and, more recently, dipped into bankruptcy twice within 20 years.
Throughout the tale, PG&E’s financial model, paired with state agencies’ inability or unwillingness to hold the company accountable, are running themes. Indeed, California Burning offers repeated examples of how, when the profit-driven company runs into trouble, the state swoops in with support to keep the company chugging along.
While PG&E’s marketing materials largely focus on serving customers, the company is publicly-traded on Wall Street, meaning executives need to be mindful of the company’s stock price and popularity with private investors. Financial incentives are enshrined in state law as well. Blunt reports that state regulations governing the utility’s profits lead the company to prioritize building new capacity—known as capital projects—over maintaining existing equipment.
For a long time, PG&E was able to get away with skimping on maintenance. But, starting with the deadly 2010 San Bruno pipeline explosion, followed by a run of deadly wildfires caused by PG&E’s equipment, the inherent conflict between the needs of PG&E’s customers and shareholders has come to the forefront again and again.
In January 2019, due to wildfire litigation costs, the utility landed back in bankruptcy court. (Eighteen years earlier, PG&E declared bankruptcy after the state’s failed experiment with energy deregulation.)
Massive hedge funds bought up PG&E stocks at bargain basement prices while other firms invested in bonds and insurance policies, all hoping to make a killing on the outcome of the bankruptcy case. Dozens of high-priced lawyers cycled through a San Francisco courtroom, generating thousands of pages of legal filings in support of various clients’ financial interests.
Eager to move on, California lawmakers set a June 30, 2020, deadline for PG&E to exit bankruptcy. However, the resulting bankruptcy deal left fire victims last in the pecking order, receiving a payout half in PG&E’s (unreliable) stock. Ultimately, PG&E once again escaped bankruptcy. And state lawmakers set up the California Wildfire Fund, a $21 billion pot half paid for by utility customers, to offer the state’s utilities a buffer against future wildfire costs.
If there’s a weakness to Blunt’s book, it’s that it doesn’t delve deeply enough into PG&E’s long-running role in California politics. With its historically steady profit stream, the “natural monopoly” has spent tens of millions of dollars on local, state and federal politicians’ campaigns, employing well-connected lobbyists and lawyers to defend its interests, and contributing generously to nonprofits and business groups around the state.
(A North Bay example of this largess: In 2019, the Bohemian reported that PG&E had infused two of Press Democrat-owner Darius Anderson’s nonprofits with $2.2 million months after the deadly October 2017 Tubbs fire. Separately, the company hired Anderson’s lobbying firm, Platinum Advisors, to represent the company’s interests in Sacramento. These interlocking dynamics were never adequately disclosed in the Press Democrat’s reports on PG&E.)
The company has also been revealed to develop cozy relationships with regulators. After the 2010 San Bruno pipeline explosion, emails emerged showing that California Public Utilities Commission (CPUC) commissioners were socializing with PG&E executives.
One can’t always directly connect those financial contributions to decisions by politicians and regulators, but the steady flow of money does help make the status quo enticing to those in various positions of power.
That attachment to the status quo became most apparent in 2019. Following two years of disastrous and deadly wildfires, some started by PG&E’s equipment while the company was still in probation due to the San Bruno pipeline explosion, the utility, then in bankruptcy, decided to preemptively shut off customers’ lights when winds raised the risk of toppling a tower or pushing a tree into a wire.
The resulting power outages impacted hundreds of thousands of Bay Area residents and increased political pressure on the newly-elected Gov. Gavin Newsom. A growing number of people, including mayors from across Northern California, supported transforming PG&E into a publicly-owned utility or nonprofit cooperative.
Ultimately, Newsom decided against radical change, instead implementing more regulations on PG&E.
While a public takeover would eliminate the need to send profits to investors and allow for lower borrowing costs, freeing up money to invest in safety, the purchase would be pricey, potentially delaying the company’s exit from bankruptcy and facing resistance from private shareholders, Blunt reports.
Another factor which may have protected the utility, somewhat ironically, was PG&E’s maintenance backlog. Blunt writes that Newsom’s team was concerned that the state would take on legal liability for the company’s decaying, explosive and fire-causing infrastructure.
However, another reason for politicians’ unwillingness to transition to a publicly-owned utility goes largely unexamined in the book. Going public would cut off the stream of PG&E’s contributions to politicians and other groups, and would make state officials and career-driven politicians directly liable—from a legal and public relations standpoint—if the utility’s equipment kills more people and customers’ bills continue to rise.
Only time will tell whether PG&E’s investor-backed business model can withstand the chaos of climate change. Publicly or privately owned, the coming years will no doubt offer a bumpy road for the company and its customers.