Will the State Take Over PG&E? And If That is Possible, Is It Also Wise? 

With Gov. Newsom and a San Francisco senator making noises about public power, what would such a move entail?

click to enlarge There is talk in the capital of the state taking over PG&E, but how real is it?

Photo by Noah Berger

There is talk in the capital of the state taking over PG&E, but how real is it?

PG&E's 2020 Fire Mitigation Plan includes yet more blackouts. In early February, some 62,000 households lost power when 20 mile-per-hour winds raked the Bay Area. Meanwhile, PG&E is also turning off the lights to perform scheduled maintenance, cutting power to some customers in Humboldt County from Feb. 6-10.

Not surprisingly, damn near everyone in Northern California is fed up with PG&E, from Governor Gavin Newsom on down. Newsom says he's been working with consultants and "legislative leaders" on a plan for the state to take over PG&E if its own plan to emerge from bankruptcy isn't good enough, but he hasn't offered any details.

Enter Scott Wiener, the San Francisco state senator best known for his quixotic efforts to increase housing density around transit in California. On February 3, he introduced legislation to use eminent domain to take over PG&E. His bill would establish a state energy authority, the California Consumer Energy and Conservation Financing Authority, to be eventually run by a board consisting of seven representatives from each area of the public utility's territory. This authority would buy out investors' shares in PG&E and oversee operation of the utility by a private contractor.

The governor may be bluffing, but Wiener is not. Catie Stewart, Wiener's communications director, couldn't confirm that the senator was one of those legislators Newsom referenced, but said he's definitely in conversation with the governor.

The advantages of public power, at least in theory, are that there's more investment in infrastructure and safety, there's more transparency about operations, and that consumers pay less for energy. The American Public Power Association estimates that the average residential household served by public power saves about $176.79 a year.

"The devil is in the details," said Mindy Spatt, communications director for The Utility Reform Network. While it hasn't yet weighed in on Wiener's bill, it does support getting rid of PG&E's shareholders and profit motive. "We're going to want to make sure any proposal continues consumer protections and some kind of regulatory oversight," she said. "Just because it's public doesn't make it perfect."

In the view of Severin Borenstein, faculty director of the Energy Institute at UC's Haas School of Business, to date neither the argument for cheaper rates nor a better-run utility is completely proven.

While a utility that doesn't need to pay a profit to investors could theoretically service consumers more cheaply than an investor-owned one, the math of a PG&E takeover would probably be more complicated, Borenstein said. Wiener's plan calls for the new entity to sell bonds to pay for upgrades. So while it wouldn't need to turn a profit, it would still have to pay interest on money it borrowed, which might even require a rate increase.

"Who stands behind these bonds?" Borenstein asked. "If the City of Chico starts its own municipal utility and is at high risk of wildfires, it would have a hard time finding lenders to buy their bonds. The state of California is big enough that even if there was another major, catastrophic wildfire, the state could absorb 20 or 30 billion dollars in liability without the risk of failure to pay the bondholders. The downside to that is that the state is on the hook."

To Ursula Schryver, the public power association's vice president of education and customer programs, the upside is clear. "The main benefit is local decision-making and deciding where you want to invest resources and money," she said.

Since PG&E became associated with the string of wildfires that has plagued California in recent years, phones at the California Municipal Utilities Association have "been ringing off the hook," according to Barry Moline, the group's executive director. "I'm certain it would work," said Moline, whose association represents 68 publicly owned utilities in the state. "It works everywhere."

For instance, Valley Clean Energy is studying the possibility of acquiring PG&E distribution facilities in Davis, Woodland and parts of Yolo County, as are the South San Joaquin Irrigation District and the Nevada Irrigation District, serving Nevada County and parts of Placer and Yuba Counties. Meanwhile, the San Francisco Public Utilities Commission offered PG&E $2.5 billion for its local system; the utility said no. Earlier this month, it launched a PR campaign called Our City, Our Power touting lower costs, cleaner energy, and a safer and more reliable electric system.

If PG&E refuses to sell off part of its system — and it adamantly opposes a public takeover — the only option is to take it to court.

Schryver of the American Public Power Association said some public utilities have been formed in as little as three or four years, when the incumbent utility doesn't put up a fight. "But often it drags on for 10 years or more."

It took the Sacramento Utility District (SMUD) 23 years to push through its purchase of PG&E's local equipment, and the fight went to the state Supreme Court. Now, SMUD is the "shining star" of public power, Schryver said.

SMUD now owns and operates a natural gas-fired power plant near Sacramento, a hydroelectric project on the American River, a solar farm, and a wind farm. It buys more green power on the wholesale market, which is then delivered via the national grid.

The Brown Act requires that all SMUD board and committee meetings be open to the public, as would meetings of a state-owned utility. SMUD spokesperson Christopher Capra said, "We like to think we go above and beyond that. We show customers not only transparency but that they have ownership and a direct say in where the company is going."

With Wiener's SB-917 now in the Senate, the plan is for it to move into a still-to-be-determined committee this spring, his office said.

One fierce opponent of a PG&E takeover is the International Brotherhood of Electrical Workers. Local 1245 claims a public takeover would mean that workers would lose their pensions. The union also fears that the new entity would lay off employees to cut costs, and that, since it wouldn't be regulated by the California Public Utilities Commission, it wouldn't be required to invest in safety and reliability. (Of course, PG&E already is regulated by that body, and it has shortchanged safety and reliability for decades.)

"There will be an untold number of jobs lost as the state and municipalities assume ownership of the PG&E system and seek to downsize or contract out what have historically been some of the highest-quality jobs in our state," the union said in a statement. The union prefers the devil it knows; PG&E has promised the union to extend its contract to 2025, with a 3.75 percent annual wage increase and no layoffs.

A 2019 law that established the California Wildfire Safety Advisory Board specifically prohibits any entity taking over a public utility from laying off employees or cutting their pay for three years following the takeover. But after that, said Local 1245 Business Manager Tom Dalzell, "It's open season." The union represents workers at 20 publicly owned utilities in California, Dalzell noted. "We have nothing against them. But this is a big change."

Moline of the Municipal Utilities Association counters that 99.7 percent of the workforce of its member utilities are union workers, the vast majority of them with IBEW. He added that PG&E workers' pensions are already protected, thanks to legislation following the utility's first bankruptcy.

"The biggest challenge for whoever takes it over," noted UC's Borenstein, "is turning the company around: making it more safety focused and efficient, and keeping workers happy at the same time."

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