Saturday, August 18, 2018
PG&E's Liability For Fire Damages
written 12 Aug 2018
published 18 August 2018
A few months ago, the CalFire verdict came back that PG&E equipment was responsible for most of the October fires in Northern California. The same laws that give the company right to take private property they want, requires the company to pay for losses caused by their operations. Current law requires these costs be borne by shareholders, not ratepayers. Before the fires were even cool, PG&E started lobbying to have that obligation changed, claiming that the possible $10B loss could force the company into bankruptcy, because the $30B company carried only $800M in insurance. Another PG&E proposed solution is state supported bonds, which will increase rates as well as cost the taxpayers. Bad planning on PG&E's part becomes a rate payer problem, if the legislature can be convinced. If the public is to bear the costs of these losses, it is worth examining what we get for this payment.
PG&E is one of the largest investor owned utilities in the country, one of three in the state. They have a monopoly in the area they serve, regulated by the Public Utility Commission (PUC), which has historically sided with the company, setting a guaranteed rate of return on investment. As a private corporation, their mission is maximum return for shareholders, which includes reducing costs on maintenance and overhead, like insurance.
The only alternative is publically owned power systems, which serve 25% of California. Los Angeles, Sacramento, San Francisco, and an additional 44 smaller towns, including Ukiah, have municipal power systems. In Ukiah, we pay less than 2/3 the rate PG&E charges for the same amount of power, one of the benefits of socialized electricity. Public ownership shifts the economic goals from maximizing fiscal profit for the shareholders, to improving service quality for the ratepayer/owners, by infrastructure investment for resilience and reliability, and living wages for local employees.
Capitalism generates profits for a few, but socializes losses to everyone whenever it gets into trouble. From a holistic perspective, this illusion of exclusive gain is a foolish denial of the fundamental reality that all parts are connected and need nourishment for the system to thrive. We have been so programed to "fear" socialism, that we ignore all the ways that socialized systems make sense, particularly in monopoly systems, where the theory of competitive advantage fails.
Capitalist monopolies have to be regulated to protect against the inherent greed of the system, but regulatory capture, where the companies buy or influence the regulators, is a well know failure. Socialized monopolies, being run by humans, are still subject to misuse, but there are additional checks and balances. The board members are locally elected, and subject to comment and vote. By living where the system operates, they experience the quality of the service in a way that absentee shareholders do not.
PG&E survived bankruptcy in 2001, but it is not to anyone's advantage to have it happen again due to fire costs. Under pressure from environmentalists, PG&E is a major player in the shift to more renewable energy and storage, as the state addresses climate change, and further investment in this direction would be at risk in a bankruptcy. However, we should consider alternatives to just sticking rate payers with the bill. If they, or the state taxpayers, are expected to cover costs when things go wrong, they should also expect an equity share in the company to benefit when things are working.
If the taxpayers are billed, then some form of public-private consortium would have to be worked out, with state appointed members serving on the board, and regular payments to the state general fund as profit sharing. If the rate payers are billed, then they should have voting representatives serve on the board to protect their interests in reliable, affordable service, with profit sharing in the form of reduced costs.
There is also the alternative of outright confiscation of the power system, as the state has an interest in keeping power flowing as an economic necessity. If PG&E is so badly managed that they can't responsibly provide this necessary service, then the people have no choice. Capitalism is not a divine decree, it is just one way of organizing an economy.