Rethinking California’s electric utilities

California’s two major electric power utilities are on the hot seat as Capitol politicians ponder whether they should be protected from the financial consequences of last month’s killer wildfires.

Downed power lines owned by Pacific Gas and Electric and Southern California Edison are suspected of sparking the fires that killed dozens and wiped out thousands of homes, with multi-billion-dollar damages that could bankrupt the utilities.

Earlier this year, the Legislature and Gov. Jerry Brown agreed that utilities could borrow money, via bonds, to pay damages for 2017 wildfires, such as the one that devastated Santa Rosa, and those occurring in 2019 and thereafter.

The loans would be repaid through utility rate increases, rather than by utilities’ stockholders, thereby protecting their basic financial stability and creditworthiness.

However, the legislation, Senate Bill 901, didn’t address 2018 fires, which is why the issue is once again before the Legislature, which reconvened last week.

The situation also puts the Public Utilities Commission and its president, Michael Picker, on the hot seat. They are supposed to balance the interests of the utilities and their ratepayers and it’s becoming an increasingly difficult role as the wildfire losses mount up.

As fire crews continued to mop up last month’s fires, the PUC held a raucous public hearing and agreed to investigate PG&E’s management, especially its commitment to safety, and look at a possible restructuring of the company.

Afterwards, Picker tweeted, “Next step is reviewing PG&E’s corporate governance, structure and operation to determine best path forward for Northern California to receive safe electrical and natural gas service.”

The wildfire liability issue – which also affects the state’s third big investor-owned utility, San Diego Gas and Electric – is the latest chapter in the tortured relationship of the three with state government.

Beginning with a misbegotten and misnamed “deregulation” of the utilities 22 years ago – which drove PG&E into bankruptcy – the state has been, by legislation and regulatory decrees, increasingly micromanaging how they generate, distribute and price electric power.

They have slowly evolved into quasi-governmental entities while maintaining the façade of private ownership, but without the direct accountability that either fully private or fully public status would impose.

This mish-mash has not been consumer friendly. As they implemented state decrees, many related to shifting from carbon-based generation to renewable sources such as solar and wind, the utilities, with PUC permission, jacked up their ratepayers’ bills dramatically.

Between 2011 and 2018, according to data compiled by the Sacramento Municipal Utility District, monthly bills for a typical 750 killowatt-hour of residential usage have jumped by 69 percent in San Diego Gas and Electric’s service area and 46 percent in PG&E’s, while those in SMUD rose by just 21 percent.

A 750 kwh bill in SMUD was $110.30 last year, while customers in San Diego were paying $224.78 and in PG&E’s area it was $177.41. Protecting them and Southern California Edison from the financial consequences of wildfires will drive them even higher.

Who should consumers hold accountable for these increases? The hopelessly intertwined relationship of the utilities and the state generates much fingerpointing and buck-passing that make accountability impossible.

Perhaps Picker’s PUC, the Legislature and soon-to-be Gov. Gavin Newsom ought to take the governance issue a step further and explore whether California’s electric utilities should become fully governmental entities – bigger versions of SMUD, the Los Angeles Department of Water and Power and dozens of small municipally owned utilities such as those in Roseville, Turlock and Modesto.

All of them have markedly lower rates than the three big private utilities, and have governing structures that are much more transparent and accountable, not only to ratepayers but to voters.