California Could Take Over PG&E Under A Proposed Bill. But Could The Plan Work?

Feb 6, 2020

California could take control of Pacific Gas & Electric. That’s if a bill unveiled Monday by state Sen. Scott Wiener becomes law.

“It will put an end to the dangerous roller coaster ride that we have been on with PG&E for the past decade,” Wiener said at a press conference in San Francisco. “PG&E is a failed company … PG&E’s business model is broken.”

But PG&E opposes the plan, and experts say it’s a tough road to go down. Here's what the proposed law would do, and what some in the utility industry think might happen next.

What would a public PG&E look like?

Wiener's idea — Senate Bill 917 — would rebrand PG&E as a publicly owned utility called the Northern California Energy Utility District. The goal is to reform the company, which has gone bankrupt multiple times, most recently after being held responsible for more than 80 deaths and burning down thousands of homes when faulty power lines caused wildfires. Californians have also lived through PG&E forcing massive blackouts across Northern California as a form of fire risk management. 

“PG&E focuses so extensively on pleasing Wall Street and creating shares and dividends for shareholders that it has allowed its infrastructure to deteriorate,” Wiener said.

The potential law could require a newly created state power authority — overseen by governor-appointed leadership — to use eminent domain as a tool to force PG&E stockholders to sell shares to the state. Wiener says bonds could be one way to pay for the switchover and the new state-run utility would be modeled after the Long Island Power Authority in New York. 

He says upper management would be made of state workers, and everyone else would be employed by a public benefit corporation. Wiener says that should be a relief for many of the company's 23,000 workers worried about pensions and benefits since they won't directly be directly employed by the state. 

Wiener also wants to hold utilities like PG&E accountable for the damage caused by forced blackouts. He’s authored a separate piece of legislation — SB 378 — to do just that. It passed the state Senate and now sits in the House.

'Not For Sale'

PG&E opposes Wieners' plan. In an email, spokesperson Denny Boyles said “PG&E’s facilities are not for sale." 

"Changing the structure of the company would not create a safer or cleaner operation," Boyles said. "Recent takeover attempts have largely failed due to a range of factors.”

Boyles further explained the company isn’t convinced a government or customer takeover is the best option. He says PG&E is “focused on fairly resolving wildfire claims” and getting out of bankruptcy. 

PG&E submitted a Chapter 11 Plan of Reorganization on Jan. 31 to the California Public Utilities Commission and updated its plan with the Bankruptcy Court. The company could exit bankruptcy by the June 30 deadline set by Gov. Gavin Newsom. 

"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,” said CEO and President of PG&E Corporation Bill Johnson in a statement on Jan. 31. 

But even with PG&E’s plan, the idea of California taking over the utility has begun its journey in the legislature. 

Could It Work?

For this idea to work a lot has to be ironed out, says Severin Borenstein, Faculty Director of the Energy Institute Berkeley Haas and Professor of Economic Analysis and Policy. 

Borenstein questions whether PG&E can get out of bankruptcy — where creditors usually have priority — and whether funds can be included from the state’s wildfire insurance fund.

“I think it's a long shot at this point,” said Borenstein. “The way this could happen is if the governor says we are not happy with that plan and we are going to decide.”

Borenstein says there will be a wide set of possibilities if the governor disapproves of PG&E’s plan, including a state takeover. 

“I want to be careful in saying anything is continuing as is,” he said.

Borenstein says there are three options for PG&E: 

  • The company could get itself out of bankruptcy.
  • It could become a giant customer owned cooperative.
  • It could be taken over by an entity like the state, which is similar to a municipal utility district. 

He says it is important to realize that if a new party takes over PG&E it assumes the liability the company has already incurred, current issues existing infrastructure and future issues. He thinks the only government entity that could handle that liability is the state.

“Frankly, I don’t see any of these solutions as a magic bullet,” Borenstein said. “I am worried that we are going to get distracted about the organizational form and take our eye off the need for huge infrastructure and improvements. It's really easy to find examples of each type that have failed in serious ways.”

Others like Keith Taylor, a University of California Agricultural and Natural Resources cooperative extension assistant specialist with expertise in electric cooperatives, say it’s time for PG&E to move beyond an investor-owned model. 

“It is going to be more expensive if we bailout PG&E in its current form,” said Taylor. “We are going to be bailing out PG&E now and probably in the next five to 10 years. It is not on good economic footing.”

Taylor says the problem with PG&E today is that the ratepayer is voiceless and that becoming a cooperative or municipal utility district will return that power to the public. 

“We need to be asking some serious questions about what PG&E’s value is to everyday Californians,” said Taylor. “What I think is best is going to be determined by California ratepayers.”

He says there isn’t enough public understanding about what PG&E could become and there’s a lot of thought that “there’s a foregone conclusion that it will remain investor owned.” 

“When we have PG&E as the only actor in the room they are not going to go out and provide solutions because they are not incentivized,” said Taylor. He thinks a change to a coop or a municipal utility district are the two strongest ways to give the ratepayer a say. 

For PG&E to become a different kind of utility Taylor says it will take the company losing “the general feeling that they are politically invincible” and a takeover could be that blow. 

‘It’s A Terrible Idea’

But others think a California takeover is unusual and frightening. James Sweeney, a professor of management science and engineering at Stanford University, says PG&E has the assets to pull itself out of bankruptcy.

“Hostile takeovers of corporations do happen, it’s just having the state being the organization doing the hostile takeover seems to be very unusual,” Sweeney said.

He says the state could buy the majority of PG&E’s stock and gain control of the company, but he thinks “it’s a terrible idea.” He says swapping ownership doesn’t stop the physical reality of fire potential, problems with infrastructure and costs of hardening existing lines. 

“I doubt that an entity created by the state of California would have more skills to solve those problems than a private sector corporation,” said Sweeney. 

Part of the reason he thinks California taking over wouldn’t work is because it’ll be a behemoth of a municipal utility district. And because of the size and previous liability — about 100,000 miles of power lines — he thinks cost could be an issue if California takes over. 

“I would bet that the users of electricity end up paying for it,” Sweeney said. 

He predicts that if California attempts a takeover many lawsuits will follow. 

Honoring Californians 

Steven Weissman, a lecturer at the Goldman School of Public Policy, says there are three positive things about becoming a municipal, like the Sacramento Municipal Utility District which took over a decade to establish. He says it’s not a profit-making entity, can reduce cost by selling tax free bonds, and it can reflect the values of the people it represents. 

“We have a strong environmental ethic here in California and this means the company could be operated in a way that is honoring those values,” said Weissman.

He says it's important to look at the flaws with PG&E and compare them to other models to understand the best options moving forward. 

“I can see why people are dismayed, I’m dismayed, I wish there was a sure-fire way to turn the culture of this company around,” Weissman said. “Maybe there’s significant merit in changing the whole premise of this business and turning it from a profit-making organization to one that only has one purpose, which is to serve the people it’s dedicated to serve.” 

But even if California takes over, Weissman says it’s not a cure all. For the state-run entity to succeed it would have to undergo just as much or more scrutiny than PG&E has. 

The bill is in the early stages of the lawmaking process and could be acted upon after March 5. 

Copyright 2020 CapRadio

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