Seven reasons to question a state utility takeover

Seven reasons to question a state utility takeover

On Feb. 3, state Sen. Scott Wiener, D-San Francisco, introduced a bill that would transfer to California taxpayers responsibility for the state’s largest and most troubled utility, Pacific Gas & Electric.

The bill would give a new government agency, the California Consumer Energy and Conservation Financing Authority, the power to buy the assets and pay off the debts — including billions of dollars in wildfire compensation — of a utility now formulating an operating plan coming out of bankruptcy.

Over a five-year period, a five-member board appointed by Gov. Gavin Newsom would oversee what might be a $100 billion package to be paid by taxpayers and ratepayers over the next decades.

The new public utility would be overseen by representatives of seven new districts serving 16 million people across 70,000 square miles of Northern and Central California. A private contractor, employing most of PG&E’s 24,000 current employees, would run the utility.

Wiener’s proposal was no surprise, given Newsom’s statements over the past several months. He has called PG&E’s bankruptcy a “godsend” that would allow the state to wipe away decades of mismanagement. He has blamed the utility for wildfires that burned down vast parts of the state, saying they were produced by “dog-eat-dog capitalism meeting climate change,” or “about corporate greed meeting climate change.”

“I personally believe PG&E has forfeited the privilege to operate as an investor-owned utility,” Wiener said, echoing Newsom’s attack on corporate gluttony. “PG&E focuses so extensively on pleasing Wall Street and creating returns and dividends for shareholders, it has allowed its infrastructure to deteriorate.”

With the blessing of Newsom and Democratic supermajorities in the Assembly (61-18) and the Senate (29-10) Wiener’s bill could very well become law, says John Moorlach, a Costa Mesa Republican and vice chair of the Senate Committee on Energy, Utilities and Communications.

Moorlach, who intends to oppose the bill, said, “Taking over PG&E is about the dumbest thing you could do at the worst possible time.”

We’ve assembled a list of seven very sound reasons why Moorlach is right — and why Wiener’s bill isn’t the slam dunk it appears to be.

1. The cost to taxpayers now and to ratepayers in the future.

As detailed as it is, Wiener’s bill is light on the estimated costs to transform PG&E into a public utility. There are several estimates out there and a lot of moving parts, but according to Yahoo Finance the utility’s enterprise value is a little more than $32 billion. This includes roughly $25 billion in debt. For weeks, Newsom has been pressing PG&E to offer a plan to reduce that debt before a bankruptcy reorganization can happen.

When PG&E filed for bankruptcy, the utility estimated its costs to pay for wildfire damages at $30 billion. As part of its bankruptcy plan, the utility agreed to establish a $13.5 billion fund to compensate the victims of the wildfires and another $1 billion to repay local governments for their part in fighting the wildfires.

In addition to assets and debts state taxpayers would cover, Newsom has said PG&E also needs as much as $50 billion more to make upgrades in its overall electric grid to help prevent future wildfires.

Those costs could be reduced if PG&E successfully emerges from bankruptcy with all of its wildfire lawsuit settled by June 30. The Legislature approved creating a $21 billion wildfire fund from which the utility could draw to reduce its debt. Half of that fund, however, comes from ratepayers and the other half from PG&E and the state’s two other major investor-owned utilities, Southern California Edison and San Diego Gas & Electric.

“The numbers do not add up,” said Loretta Lynch, former president of the California Public Utilities Commission. “There’s no way for PG&E to pay off all of the people without raising rates,”

2. The public doesn’t much like the idea.

Maybe it’s the sticker shock, but a recent Los Angeles Times/University of California Berkeley Institute for Government Studies poll found only 17 percent of prospective voters want the burden of a public version of PG&E.

3. The politically powerful International Brotherhood of Electrical Workers isn’t too keen on it, either.

Local 1245 represents 12,500 PG&E employees, more than half its workforce. A few dozen very vocal union members shouted at Wiener during his press conference on Feb. 3, saying their jobs and their pensions would be at risk if his bill were to pass.

“We do not believe that forcing taxpayers to foot the bill for a state takeover is the right way to effect this type of change,” the local’s business manager, Tom Dalzell, said in a statement that was accompanied by a detailed fact sheet. “The cost of such an acquisition could easily reach $100 billion. A takeover would be extremely expensive and time-consuming, it would negatively impact workers and communities, and it would divert resources away from the infrastructure work that will protect against future fires.”

Moorlach said he is surprised that no one, apparently, has approached the union to demonstrate how attractive a state employee salary and benefits package would be for PG&E employees. He wasn’t joking.

4. Public ownership is no guarantee of public safety or public accountability.

“Under our plan, the company will emerge from Chapter 11 as a reimagined utility with an enhanced safety structure, improved operations, and a board and management team focused on providing the safe, reliable, and clean energy our customers expect and deserve,” Bill Johnson, the CEO of PG&E, said in a statement touting a plan that has yet to meet Newsom’s approval.

You can imagine those would be the very same goals of the governor’s transition board. But those goals would have to compete with the costs of meeting California’s green-energy mandates, the nation’s most rigorous requirements for generating electricity from renewables.

And critics say those requirements — crafted by lawmakers, environmentalists, and government unions, and carried out by the state’s Public utilities Commission (CPUC) — were the cause of the recent wildfires: instead of investing in fireproofing infrastructure, the state’s utilities were driven to invest in renewable energy.

On his way into office in 2011, Gov. Jerry Brown set a renewables goal of 33 percent by 2020. On his way out, he mandated 60 percent by 2030. To the billions already spent, add tens of billions more to meet the new standards.

In a comprehensive look back at PG&E’s troubles, the Wall Street Journal in late December pointed to a study from an independent panel that concluded the state emphasis on being a climate change pioneer came at a significant cost to safety and regulatory compliance.

It’s also important to note, because Wiener and Newsom have made a point of blaming unfettered capitalism for this mess, that everything PG&E has ever done or not done has been subject to review by the California PUC.

If it is to be graded by its mission statement, “dedicated to ensuring that consumers have safe, reliable utility service at reasonable rates,” the CPUC has failed miserably, for at least 16 million customers.

“PG&E is made out to be this greedy self-serving enterprise, but as a regulated monopoly it only operates with the green light from the CPUC,” Jordan McGillis, deputy director of policy for the Institute for Energy Research in Washington, D.C., said.

The operators in a regulated monopoly have no competitors and, thus, no incentive to innovate, improve their service or their product, which in the case of PG&E would include public safety, McGillis wrote in an IER paper in October.

5. Even that oversight goes away if municipalities are allowed to form their own utilities.

Wiener’s bill offers this option, which has the endorsement of more than two dozen mayors, including San Jose Mayor Sam Liccardo, who proposed in November the cities form a nonprofit utility cooperative.

While nearly three-quarters of California’s population is served by investor-owned utilities, more than 40 local governments provide electricity for their customers. Anaheim and Sacramento are considered success stories and customers in Los Angeles, Palo Alto and others get reliable services at rates that are competitive or lower than PG&E’s.

Advocates like Wiener tout the advantages of local control, but under his plan those cooperative utilities would be exempt from any regulation by the CPUC or the Federal Energy Regulatory Commission.

Absent the need to show a profit or compete, government agencies including utilities are less likely than for-profit businesses to respond to regulation, Texas A&M political science professor Manuel Teodoro says.

Teodoro collaborated on comparative studies in 2014 and 2018 that showed “government agencies have greater incentives than profit-maximizing firms to shirk regulation and/or seek regulatory relief through political channels.”

“Our conclusion for situations like PG&E is a variation on trust, but verify,” Teodoro said. “It’s privatize, but regulate.”

6. Going from investor-owned to municipal is arduous and iffy.

Concentric Energy Advisors, a consultant for many investor-owned utilities, looked at 60 communities that tried over the last 20 years and found just nine that worked. In most cases, their study showed, communities underestimated the cost, stiff resistance from the old utility, and the time it took to convert to the new service.

The city of Boulder, Colorado has yet to complete its conversion, and after eight years is mired in a court fight with investor-owned Xcel Energy. In 2012, Hurricane Sandy tore open more than a decade of mismanagement by the Long Island Power Authority. The Authority, which went municipal in 1998, was found in 2011 to have overcharged its customers a total of $231 million.

7. Nobody is sure how serious Newsom is about taking over PG&E

It’s going on two weeks since Wiener unveiled his bill, and Newsom has yet to publicly support it. Staffers for Wiener say only that the bill has been discussed with Newsom’s people. Wiener’s municipal breakup component is something Newsom has not yet gotten behind.

Wags in Sacramento have speculated that Newsom has played up the takeover talk to pressure PG&E into delivering a post-bankruptcy plan with all new leadership he thinks is politically palatable.

“The governor is still a little hard to read,” Moorlach said. “I don’t know if he is displaying showmanship or leadership. I haven’t figured this guy out.”

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Mark Lisheron is an investigative reporter and contributor to California Policy Center. This piece originally appeared in the Orange County Register.

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