California Mayors Join Campaign to Buy Out PG&E
wsj.com
wsj.com
In a perfect world power consumers and producers can just buy and sell into the marketplace as provided through the public lines. That's a long ways off because the grid just isn't that smart but maybe one day we'll get there.
The downside is that the taxpayers are now forever on the hook of paying shareholder dividends for electricity.
The best outcome in this whole situation is that PG&E is sued into bankruptcy and nationalized, leaving the shareholders with nothing. Owning a government-protected monopoly-utility that is bad at its job should not be a license to print money, regardless whether or not you ponied up some cash up front. Sometimes, you make bad investments.
Nearly all of the situations we've found ourselves in, be it power, internet, water, etc. are because we allow companies to have local monopolies over distribution systems, because we don't want to pay for the infrastructure up front, or take loans out as a towns.
It's a lot easier as a politician to say that someone else will pay for something than to say that we as a municipality are going to issue 10 year bonds or something so that we can fund an infrastructure project. We then freak out 10 years down the line when we realize we're stuck with a bad system because we sold ourselves out.
I’d be more curious if you had a reason why you think state-owned would be worse than state-regulated.
To me it seems better for sure. A panacea? No, but better than where we’re at today
Just looking over the Wikipedia page [0] it appears PG&E has a guaranteed rate of profit and monopoly status over certain aspects of the infrastructure. The problem with governments owning businesses is that they don't respond to market signals in the form of profits. Under this regulation, PG&E is also buffered from needing to respond to market signals in the form of profits.
The intellectual justification for privatising anything is to expose it to the need to fight to make profits which then enforces a sort of discipline on resource use. Regulation that privatises a company then shields it from the need to try hard to succeed is pretty much strictly worse than nationalising.
That is a likely perspective from the sort of person who believes that the political system is bad.
[0] https://en.wikipedia.org/wiki/Pacific_Gas_and_Electric_Compa...
Oregon, Washington, and BC have bad fires too (not as bad, but bad nonetheless), but the rainy season comes much earlier. Here on the west coast you can set your watch to when the rainy season starts. Washington it starts within a couple weeks of early October, Oregon late October (I grew up there and never remember a dry Halloween, but it was also one of the first rains in months). California is so big it varies, but weatherman down here in the bay is saying mid-November at the earliest.
Low population in the forested areas is a factor, but less so. We just have fewer fires and they’re easier to fight.
There is also the type of trees, California is full of eucalyptus (arguably an invasive special from Australia) that constantly dumps debris in the form of oil rich bark and leaves and no natural insects are around to break it down.
Oregon and Washington don’t have that problem.
Arizona and Nevada have nothing to burn. The Nevada border is almost entirely huge mountains. It seems odd that 2 straight lines meeting at Lake Tahoe would be such a dramatic change from wet to dry, but it is. Arizona doesn’t look any different from south-East California, but that’s also probably the only part of California not affected by fires.
The Diablo/Santa Ana winds are also a big factor especially in Southern California. Those are ironically caused by the rainstorms in Oregon and Washington. The winds come in, full up the massive Great Basin of Nevada and Utah and eventually spill out over the mountains in California causing super, super dry and hot winds that can be the level of hurricanes. It’s this time of year when Oregon and Washington are getting rain and California is not that is especially precarious.
I’ve lived in both the Bay and LA for years now and I’ve actually never been awake for them. They only last a few hours and it seems only at night. I’ve seen the aftermath though, tons and tons of tree debris everywhere. In LA the palm trees even fall over and it looks like a war zone the next day.
I’m sure they’d have to make reasonable payments to the shareholders, but it’s not like PG&E is in a very good bargaining position here
Who's going to provide power to 16 million customers in California?
I’m just saying there is a path where the government can take over the utility that doesn’t require waiting until PG&E goes completely bankrupt.
Especially since the CPUC is not widely understood, this structure allows elected officials to present themselves as not being responsible for the tradeoffs PG&E has to make, even as the CPUC actually makes those decisions for them.
You can not renew contracts when service is not satisfactory and any lawsuits are on the operator, not the taxpayer.
If local municipalities or the state own the poles, you can have a better incentive system where homeowners hooking up well-maintained solar/wind to the grid helps keep the grid humming and lowers costs for everyone.
You actually don't.
When you are generating most of your own power during renewable generation peaks, and drawing power from the grid, during renewable lulls/peak usage, you are in fact using the grid as a giant, personal battery. (One that would run you in the order of ~$50,000, if you were to build one out for yourself.)
Electricity is relatively cheap, especially during peak renewable generation times. Maintaining the grid is what's expensive.
Over the past 50 years PG&E has made a game out of mis-managing the transmission infrastructure, selling it to the state, then buying it back at a discount.
California needs to own the entire utility and not just keep giving it un-warranted subsidies and gifts.
All PG&E executives should be imprisoned for the hundreds of people they have murdered in the past decade between their fires and the San Bruno explosion.
It is never in the best interest of the people to give critical public infrastructure to rent seeking flam-flam artists.
I'm not saying I fully support private roads or public roads, but the worst combination is a little bit of both...
People calling for nationalization are focusing on the wrong thing. For the reasons you mention, utilities need regulation. Both government ownership and rate regulated private monopolies are a model that works routinely around the world. The ownership structure therefore can’t be the reason for PG&E’s problems. The problem instead seems to be California. PG&E was heavily regulated by the CPUC the whole time. What was CPUC doing wrong that the regulators in Germany, Spain, not to mention other US states are doing right? Bigger picture, why is it California that seems to suffer from all of these problems? Among the worst schools in the country. Housing prices out of control. Massive failed investments in public infrastructure? Cities running out of water?
Because they don't have a PG&E in those places. Maybe the problem is with the culture at PG&E and not with the regulators? I can't figure out if your argument is that there wasn't enough regulation in California or there was too much of it.
And NL is the least “socialist” place I’ve even known
With public companies, the people who own the company don't even live here and they only own it to make a quick buck. They'll live in an armchair in Wall Street and short sell in a heartbeat to make quick bucks on the downturn, not realizing that their trigger-happy, short-selling behavior is actually hurting California residents who depend on the company to be funded at the worst of times to fix problems and upgrade infrastructure.
Except PG&E is 100x larger than SVP and has completely different operations.
As of January 1, 2015, SVP and the City of Santa Clara have the lowest average system rates for electricity in California for any electric utility serving over 10,000 customers.
Saying they rely on some PG&E transmission lines is a massive understatement. Also, how cool is it that you can deep link to a map showing a minor utility's transmission lines?
As one anecdote/example: a close friend of mine is an actuary for a mutual insurance company, which is an ownership structure for an insurance firm such that the corporation is exclusively "owned" by the contract / policy holders. I remember having a fun debate over beers on why more companies / startups couldn't operate in that manner.
Because it would complicate having multi-billion dollar exits. The VC's don't care about creating sustainable businesses that create value for their users. They care about creating runaway hits that they can make billions of dollars on when they IPO.
I invite the folks downvoting to explain how capitalism works with a market monopoly. Since pointing out government exists to prevent just such a situation is apparently an unpopular opinion.
However post-2008 world is one where (1) the government will probably step in and rescue the people who were lending the money and (2) there are lunatic low-interest policies that encourage lending to anyone with a pulse over all forms of sane weighing up of risk.
So why not fund businesses that burn money? The problem in the story isn't antitrust, it is low interest rate policies that excessively favour borrow-and-spend tactics.
The whole build a product, attract users, (big) exit, incredible journey cycle can feel pretty toxic at times.
I am not so sure. The VC's want you to either have a billion dollar exit, or fail quickly. Most owners would be pretty happy with a multi-million dollar a year sustainable business.
This is a flippant response to a deep question.
Mutuals work well for utilities because they're not required to invest for the long term, require public support and largely operate on existing physical capital. External capital is, to date, the best system for sponsoring disruptors and for building out new capital.
Just as private ownership isn't the solution for everything, it isn't anathema for everything. Presuming so is falling for the same mental shortcuts that produced PG&E.
...uhm, shouldn't utilities be required to invest for the long-term?
The different between should and did are incentives. Utilities have no incentive to invest. (They do have an incentive to spend, which if enabled by politicians, generally yields pricey, useless contracts for cronies.)
A good case study is in wireless providers in the U.S. and EU. American providers are private; European ones are more utilities. The utilities are cheaper; their CAPEX (and executive compensation) is lower. American cities thus end up with--on average--faster, more-expensive service than European cities. There isn't a better solution, just different ones for different goals.
European wireless internet providers are not private? That's news to me, can you give me some examples? I don't think that would even be permitted under EU competition law, which forces member states to create markets in those areas.
Actually AT&T, before being broken up, ran under a regime that required it to invest and gave us a lot of foundational tech and basic science that still serves us today. Though the stock and bonds were traded on the public market they were so tightly regulated they were more like an of-balance-sheet entity like Fannie Mae.
Of course under such a regime they also found various loopholes and such that held us back in other ways. But since the breakup, infrastructure investment has plunged.
In the net I'm not sure if it was good or bad. Just pointing out your assertion is not absolute.
However I couldn't find a source on the quote about them being required to invest in R&D. It looks like Bell Labs was founded in the 20s, well before any significant corporate regulation took place, and prior to it's founding in 1925, Western Electric and AT&T had been operating their own separate yet active research departments.
really this is a regulatory failure. see e.g. https://www.wsj.com/articles/a-cat-and-mouse-game-pg-es-long... . Harris largely did nothing FWIW; to be fair it's not clear that any other regulator would do anything differently.
Net Present Value generally recommends against what most people would call good stewardship of a finite resource. It seems likely that the mental model behind NPV doesn't work out over long timeframes.
What do "stewardship" and "resource" mean? Who agree on one of those definitions? Who form a natural conflicts with them?
Considering stewardship of natural ecosystems. Does that mean holding it in stasis? Keeping out human effects? How do you know if a snail went extinct because of natural or human factors? Which model influences that decision?
The chief advantage--and defining feature--of economic ownership models is they convert almost every question into currency. That seems base at first. But it enables competing sets of goals to be discussed within a common language.
If we won't assign natural resources a dollar value, and a set of owners incentivized to defending that value, or protect them absolutely under the law, those resources will be lost. (If there is a silver lining to California's NIMBYs, it is this. That energy results from an ownership system and defense mechanism. Tweak the variables and that energy could fight for our wetlands.)
Obviously capitalism is efficient, but when it comes to a regulated monopoly like PG&E, I see it like a cost plus government contract.
Typically cooperative ownership structures have trouble making big changes all at once — pivoting. When power is distributed hierarchically, it’s easier for a new idea to flow from bottom to top, top to everywhere. The tradeoff is that hierarchies can only do this if most people are mostly honest, while democratic structures do a better job of smoothing out competing incentives.
(I learned this, originally, from a contrast between Lenin’s NEP syndicalism and Stalin’s command economy. Centralization in the latter permitted big movements towards education and energy generation.)
That being said, having lived in countries with state run utility companies I don't trust the government to provide the best customer experience to put it mildly.
"Touchstone Energy Cooperatives represents a nationwide alliance of member-owned electric co-ops, including yours. Collectively, it delivers power and energy solutions to more than 750 unified local electric cooperatives across 46 states, forming the largest electric utility in the country."
*Apologies to anyone who works at the DMV
So yeah, the post office is a great example: Of what happens when critical services are underfunded.
The post office is also not a traditional federal agency - a directly state-operated power company would have a very different administrative and funding structure.
Did I do it right?
They're faster for service, cheaper on rates, don't shut my power off when it's windy, their website is better.
The DMV is always the go-to when people fear government providing a service. Why? Yeah, wait times can be up to a couple hours. But the service I get when I'm called has always been fine. And the only reason I have to appear in person is when I've been lazy about paying registration or getting my smog check.
For 90% of what I want to do, I just use their website on my own time and with no hassle. Or AAA. Or make an appointment at the DMV and wait about 30 minutes.
Complaining about the DMV is like complaining about airline food. Neither of those are really that bad, and I suspect if the money was spent to make them first-class experiences, we'd all just start complaining about the cost instead.
Private sector companies only perform better than the government when they're in a competitive space. As far as I'm concerned, a private monopoly is usually worse than the equivalent government-provided service. (see: Comcast vs. municipal broadband)
Second: Here in Oregon there are tons of smaller power companies mostly owned by local cities, counties, or non-profits. https://www.oregon.gov/energy/energy-oregon/Pages/Oregon-Uti...
There is very little of the animosity towards these utilities I used to see in California about PG&E. They are run well and keep rates reasonable. I just wish we had a similarly run replacement for Comcast.
Whether California could do something similar, I have no idea. It's pretty surprising how different the culture about this kind of thing is between the two adjacent states. The big issue is item 1 above... PG&E sets an awfully low bar. Maybe if PG&E's management got personally fined when a fire broke out and stopped getting paid when there was a blackout.
All three of these are possibilities:
- more fires
- more days without power
- more expensive
I don't see any argument so far why nationalizing PG&E is going to improve anything. It's already heavily regulated. Same bad decisions PG&E management took would be taken by State PG&E management for the same reasons.
> If you have better ideas for how to fix PG&E you should contact your representatives or perhaps start a ballot initiative.
This is another fallacy, for which I don't have a name. It goes like this: I assume my solution fixes the problem. In order to be allowed to poke holes in my solution, you must present another solution that you can prove fixes the problem, or your criticism is invalid.
Public energy utilities in Canada just got loaded with off balance sheet debt and used as a general revenue slush fund for “infrastructure,” and built by unions on double time and a half, but it would be harder to get away with that today. A municipal wealth fund like a sovereign wealth fund would be worth exploring.
Would it be better or worse?
Is there no public utility oversight board?
"About 48 percent of the population inside micropolitan statistical areas lived in incorporated places, while about 52 percent lived in unincorporated areas"
https://www.census.gov/population/www/documentation/twps0082...
anecdotally the pursuit of not being around "public services" is a large part of the motivation. Personally as I'm leaving my 20s far behind I realize all the neon and jazz of the city did nothing but pacify a deeper realization that a more clear seeming experience of mind was on hold or somehow diluted...convenience can be very distracting.
... hopefully this makes some kind of sense. different kinds of folks/values. a lot of my peers live right in the city, which makes sense. convenience of stores / hospitals etc for raising a family. for me alone give me 50 acres and a 2 bdrm ranch home. and an invisible driveway :)
in all of the US 62% live in incorporated areas.
United States 281,423,231 175,062,893 62.2 106,360,338 37.8
https://www.census.gov/population/www/documentation/twps0082...
https://en.wikipedia.org/wiki/Bel_Marin_Keys,_California
That's an unincorporated area, populated by an affluent community, with all the services you'd expect.
I think the answer is actually in the negative becuase the common amenities include pretty basic services like roads, police protection, or grid power. As far as I'm aware that level of disconnect is very rare.
What I don't understand is why we'd want the regulators that let PG&E get so bad take over the place.
If the former, I'd like to know how you came to that conclusion. If the later, that doesn't mean the regulators are worse.
I'm not saying I'm pro-regulator or think PG&E should be bought out. I just am perplexed by your comment.
If the regulators taking over somehow makes it worse, we can always privatize it again. There are other private power companies in the state that will remain private.
More lives, more money, more vegetation, more houses, more resources.
If you're going to replace something, it's usually a good idea to have some reason to believe what you're replacing it with will be better.
I'm not advocating for PG&E, I don't know enough to have an informed opinion. But currently I don't see any obvious solution to the situation.
Are any of those examples in California?
You can see a partial list of public-owned utility companies in CA here: https://ww2.energy.ca.gov/almanac/electricity_data/utilities...
There are 365 days in a typical year. That's the theoretical limit for how many days Californians can go without power. That should give you an idea how much you have to lose from a power availability aspect. On top of that, there are millions upon millions of acres of unburnt land in California. A even more mismanaged PG&E could result in many more fires than we've seen thus far.
Basically, there is a LOT you can still lose.
I agree there is a lot to lose. But I think you're being a little aggressive with your negativity.
Because unlike a privately-owned and publicly-regulated utility, it would be subject to undivided public accountability.
Does that system actually align incentives so that the utility is motivated to preempt problems like these?
No, and that would actually defeat undivided accountability for outcomes.
> Does that system actually align incentives so that the utility is motivated to preempt problems like these?
Do politicians like to be blamed for burning down the state with no one else to point to?
PG&E could easily fix the lines and pass the price onto the consumers. If anything, if their profits are limited to 10%, you'd think there would exist a perverse cost+ incentive on PG&E's part.
My understanding is that they could not, yes, because state regulators exercise line-by-line control over PG&E's budgets, including how much money will be distributed as dividends and how much money will be spent on maintenance.
Keep in mind that even if PG&E is doing their best to keep costs low, the cost of wildfires is being passed on to the consumer anyway (in some cases the cost is being passed on as dead humans instead of higher electrical costs). Is it better for PG&E to be able to have a profit margin of 25%, or for their lines to not cause wildfires? What about a low profit margin stops them from maintaining lines?
If the state and/or counties are operating the electrical company, profit need no longer be an issue. If they aren't making enough money to cover maintenance cost, that can come out of tax dollars or state-issued bonds just like road maintenance does. It's not as if electrical infrastructure isn't important. Taxpayers may not like higher taxes, but they also don't like having their power cut off or their houses destroyed.
[1] https://www.macrotrends.net/stocks/charts/PCG/pacific-gas-el...
"The CPUC meets publicly[15] to carry out the business of the agency, which may include the adoption of utility rate changes, rules on safety and service standards, implementation of conservation programs, investigation into unlawful or anticompetitive practices by regulated utilities and intervention into federal proceedings which affect California ratepayers."[0]
It is also their mission to assure access to reliable utility services.
"The CPUC regulates services and utilities, protects consumers, safeguards the environment, and assures Californians’ access to safe and reliable utility infrastructure and services."[1]
However, the CPUC does not regulate governmental utilities.
"The CPUC does not regulate the rates of utilities and common carriers operated by government agencies."[0]
I would prefer that my county was responsible for utilities as they are much more responsive to local demands and its much easier for me to justify rate increases for safety improvements.
[0] CPUC Wikipedia
[1] CPUC Mission Statement
"The Constitution of California declares that the Public Utilities Code is the highest law in the state, that the legislature has unlimited authority to regulate public utilities under the Public Utilities Code, and that its provisions override any conflicting provision of the State Constitution which deals with the subject of regulation of public utilities."
They often veto PG&E's proposed maintenance and infrastructure expenditure: https://twitter.com/cjg2127/status/1187969182182166530
The fact that this is often forgotten may be a political convenience: https://twitter.com/cjg2127/status/1187978236891807745
Yes. See https://twitter.com/cjg2127/status/1187969182182166530 and https://twitter.com/cjg2127/status/1187972495250341888 for the mechanism whereby this happened. If state regulators are striking specific line items to do with maintenance from PG&E's budgets and the awfulness is that PG&E doesn't do enough maintenance, then yes, the state regulators are forcing PG&E to be awful.
A drought combined with decades of highly aggressive fire suppression has sent the number of dead trees in CA forests skyrocketing. PG&E is an absolutely perfect scapegoat for CA politicians, but what would we say if one of our bosses told us to completely disregard mitigating impact, and instead focus all our attention on reducing the likelihood of failure to 0?
EDIT: not that PG&E is without responsibility, but it's just aspect in a complicated issue.
Tax/rate payers are paying in either scenario. Private ownership just means shareholders manage to siphon off some of the money in dividends before the lawsuits.
I'm not personally a fan of suing them because it comes out of customers' pockets and not executive compensation or dividends, but we need to do something. I'm happy to see state ownership considered as an alternative to the lawsuits.
The power shut-offs are in response to the past fires, which were caused by poorly maintained lines.
Yes, there is a strict liability regime. Yes, this makes the definition of negligence irrelevant. No, this doesn't make preventive maintenance irrelevant: strict liability only applies to fires caused by their equipment, and preventive maintenance obviously effects that (that's what it is preventive of.)
But, in any case, if there weren't at least negligence involved, the behavior contributing to the fires would probably not have been found to be a violation of their criminal probation on top of any civil liability for damage caused by the fire.
On the bright side the lawsuits have impacted PG&E's stock prices which does make it easier to take the company over, but the loss of power + increase of prices is not an ideal outcome.
[1] https://en.wikipedia.org/wiki/Wildland%E2%80%93urban_interfa... [2] https://www.fs.fed.us/nrs/pubs/rmap/rmap8/rmap-nrs-8-WUI-MAP...
When fires happen in California, short-sighted shareholders from all over the place short sell their stock, sue them and waste money on legal expenses, and otherwise deprive them of funds they need to fix problems.
Imagine if every highway in the Bay Area were a publicly-traded company. Accident happens on I-280 due to a pothole. Shareholders panic and short sell I-280 stock. Accident never gets cleaned up. Pothole never gets fixed. Because they don't have funding to fix it.
When there are problems in infrastructure, like fires, we should be pouring money into fixing and upgrading infrastructure immediately so it doesn't happen again, not taking funding away.
I occasionally hear this argument about "the roads" mentioned, but I'm genuinely curious if there are notable real life examples of this scenario.
Should a publicly traded utility be relying on new investment to pay maintenance costs though? That seems like a horrible practice and a sign of more systemic issues at such a utility if one were to exist.
Why is it automatically the case that (for example) administrative policies set in place by government regulators in Venezuela couldn't already be set in place by PG&E's private administrators?
You can't just respond to every federal agency with "just like sugar companies in Venezuela". It's absurd.
As for Venezuela, they've also been subject to US sanctions when the privatize something, so cause and effect are hard to determine.
PG&E employees are not guaranteed salaries, pensions and benefits by the state. This means they need to stay competitive as they may get fired if revenues drop.
Presumably if California nationalized PG&E, it would be run by people with experience running utilities, not Hunter Newsom.
It's essentially a license to print money, with no incentives to improve. If you don't like their service, there's no competing power provider you can switch to. If you don't like them starting wildfires, you can sue them, and end up paying for your own lawsuit out of your next power bill. If you don't like them deferring maintenance, while paying shareholders dividends, you can... Complain on the internet?
At least with a state-owned utility, if you don't like how it's ran, you can always exercise your democratic rights to vote someone in who can fix it. Surely, of the 39.5 million people in California, you may be able to find one politician who knows how to run a business? Or knows how to hire managers that know how to run a business?
Here's an example:
http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M102/K3...
Then the price of Oil skyrocketed in the '00s, and the USA began destroying and sanctioning the economy to keep those oil rates high. This is the same reason Iran has sanctions, protecting the USA and OPEC.
Really, BART has a lot in common with how PG&E executives are running things. The solution is to give it enough funding and ensure the money goes to the right place. We can't do that right now with a private power company and they aren't sending the money to the right place, but if set up correctly a regulator CAN do that. Whether they will is another question, but it probably won't be worse.
Nobody is proposing handing PG&E over to BART. In the first place, with how much of BART's funding comes from customers it wouldn't be that different were it privatized.
From the cheap seats it sure looks like they squeezed every cent they could out of the utility rather than ensuring it had a future. There may even be a breach of fiduciary duty, given how disinterested in a future for the company they seemed by doing so.
Granted, this is better than continuing to beat the dead horse that is PG&E for money. However, if this plan isn't accompanied by legitimate forest management and plans for controlled burns this would be like bailing out student loans without adjusting how the government guarantees student loans...
We need to at least start with measures to address that, even if we also need to do other things. Are you arguing that we ONLY need to do those other things, or just that we're doomed?
If the bankruptcy and blackouts don't work, we need a new approach to the bug fixes. De-privatizing the power company is one thing that might work, given that it's a technique that works for other areas' power.
Change the law?
How is that not another patch?
I think this is proposal is definitely more than a patch though, it is pretty fundamental.
Why aren't all the big tech companies generating revenue from customer data...customer owned?
However, the reality is big tech needs customer data, customer data does not need big tech.
If what is of value is customer data, customers can and should own and control the entity generating the monetary value from their own data.