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PG&E: Lessons for the City and DWP

LA WATCHDOG--“It’s more than just climate change.  It’s about dog-eat-dog capitalism meeting climate change. It’s about corporate greed meeting climate change.

It’s about decades of mismanagement.  It is about focusing on shareholders and dividends over you and members of the public.  It is a story about greed.  And they need to be held accountable.” Governor Gavin Newsom commenting on the wildfires and blackouts caused by Pacific Gas & Electric. 

There is no doubt that PG&E, its management, and its Board of Directors need to be held accountable for their roles in the wildfires that have devastated Northern California.  

In November, the Camp Fire ravaged 153,000 acres (240 square miles) and destroyed Paradise, a town of 26,000 residents.  This resulted in $30 billion in potential liabilities and forced the nation’s largest electric utility to file for protection under the bankruptcy laws in January.    

And now the Kincade Fire in Sonoma County covering 66,000 acres (and growing since it is less than 5% contained) is roaring out of control, where over 185,000 residents in wine country have been evacuated and over 2 million PG&E customers in Northern California are without power. 

While Newsom is right to say that this situation is unacceptable, the State of California is not without considerable blame for this fiasco.  

In California, the politically appointed Public Utilities Commission is responsible for overseeing the operations, infrastructure, safety, and finances of this regulated monopoly.  But rather than focusing on reliability, the absolute number one priority for any utility, the Commission, along with the Legislative and Governor, have directed the utility to focus its attention on climate change, renewable energy, corporate governance, identity politics, and environmental justice.  

Even when PG&E requested a hefty, three year rate increase in 2012 to ensure the reliability of its electric grid, the PUC cut its requested increase by 50% as a result of political pressure from environmental groups worried that excessive rate increases would reflect poorly on their climate change initiatives.  

Furthermore, in subsequent penny wise and pound-foolish decisions, the PUC denied, for the most part, the utility’s requests for rate increases to finance critical repairs and upgrades to its aging grid and transmission lines.    

The blackouts and wildfires will have a significant impact on Sonoma’s local economy because of the disruptions to businesses, including, but not limited to the tourist trade, wineries, retailing, and other service providers.  

Even more so, the State’s economy will be adversely impacted because who in their right mind would want to establish or invest in a business located in a state that has unreliable power.  This is compounded by California’s business unfriendly reputation, overly burdensome regulations, and the highest taxes in the country.  

While our Department of Water and Power is not regulated by the PUC or subject to the whims of the Governor and Legislature, it is impacted by the meddling of Mayor Eric Garcetti and the City Council who do not consider reliability to be the absolute number one priority of the Department. 

Rather, City Hall views DWP and its Ratepayers as an ATM.  Over the last ten years, City Hall has extracted over $2 billion from the Power System without the approval of the voters.  This money should have been used to fund investments in the Power System’s infrastructure, thereby improving the electrical grid’s long-term reliability. 

In addition, Mayor Garcetti made a unilateral decision to phase out the three, in-basin, coastal power plants without adequately reviewing the impact on the reliability of the Department’s Power System.  Rather, he is willing to risk the risk system reliability to appeal to the demands of the environmental community which has no respect for the economy or Ratepayers. 

Over the next several years, PG&E will be a bonanza for lawyers and investment bankers.  There will massive class action lawsuits to determine the wildfire related liabilities.  The stockholders, bond holders, hedge funds, and other creditors will battle out conflicting claims in bankruptcy court.  PG&E will also have to invest billions to improve its electric grid and reliability.  And then there will be litigation over eminent domain as cities such San Francisco and San Jose will try to buy PG&E’s local distribution systems at bargain basement prices.  

Gavin Newsom is right.  It is more than just climate change.  It is that reliability is DWP’s absolute number one priority. 

 (Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council.  He is a Neighborhood Council Budget Advocate.  He can be reached at:  lajack@gmail.com.)

-cw