San Francisco Makes a Charge Toward Public Power
Late Monday, California energy provider Pacific Gas & Electric (PG&E) filed its long-anticipated reorganization and bankruptcy-avoidance plan in U.S Bankruptcy Court in San Francisco. The investor-owned utility filed for Chapter 11 bankruptcy protection in January, owing to the expectation of some $30 billion in liabilities for its role in multiple deadly fires spanning 2017 and 2018. The company has until September 29 to formalize its final proposal, which would allow it to continue operating without heading to bankruptcy auction.
The plan sets a hard cap of $17.9 billion for claims stemming from a series of record-setting wildfires in the state that the company’s power lines were found to be culpable for. Aside from the dollar amount, which some observers have suggested may be insufficient, there’s the notable absence of any proposed sacrifices from PG&E’s bondholders or shareholders. And if PG&E resolves its bankruptcy hearings by June 2020, it will be an eligible and willing recipient of a $21 billion state fund, recently established to help California’s investor-owned utilities pay for future wildfires liabilities. Another potential bailout, a highly contentious bill from Republican Assemblymember Chad Mayes to allow PG&E to raise up to $20 billion in bonds to help cover wildfire claims, got shelved until next year.
But the most interesting proposal for how to deal with PG&E came on Sunday, in the form of a $2.5 billion bid from the city of San Francisco, which has offered to buy the electrical lines serving its municipal area. The bid marks a drastic step forward in a long-talked-about plan to municipalize part of the utility that maintains near-monopoly control over northern California’s energy. And while the hundreds of miles of wires and hundreds of thousands of customers that would be transferred to public ownership under this proposal may not seem like a major proposition for a company with some 16 million customers, the possibility of establishing a public utility in San Francisco may prove to be a major turning point, wresting control from shareholders and establishing a path towards a more environmentally and economically just power grid.
PG&E has long been maligned, for everything from exorbitant costs, to shoddy maintenance, to groundwater contamination, to the recent fires. In many ways, the company is the result of California’s misguided deregulation campaign in the late 1990s, which led to rolling blackouts and severe price gouging from energy trading companies like Enron. The state believed then that encouraging market competition would bring down prices. That gambit proved to be deeply misguided; by 2001, PG&E filed for bankruptcy, eventually passing most of its debts to ratepayers.
Since then, PG&E has continued to rely on state and local governments to socialize its costs, evidenced starkly by this latest round of bankruptcy hearings, while passing on profits to shareholders and investors. But San Francisco’s proposal to take its lines under public operation is a sign that the political climate may have finally turned against the longstanding regime of market liberalization, and it may even suggest a way forward for cities and states nationwide as they look to decarbonize their energy systems and plan for the advancing impacts of climate change.
City-held public utility programs are certainly not without precedent. Just a couple hundred miles down the road, the Los Angeles Department of Water and Power is the largest municipal utility in the country, serving some four million residents. It’s been in public hands for almost a century. There are other examples, too, beyond the liberal bastions. The Tennessee Valley Authority, designed as an economic development engine for the rural south, still supplies 10 million Americans with public power in seven southeastern states. In deep-red Nebraska, where Republicans dominate at every level of government, there are some 166 different community-owned utilities, servicing its population of nearly two million. Public ownership has not proven to be an expensive luxury: Rates in Nebraska are lower than the national average.
The idea of transitioning to public utilities has been gaining traction at the national level as well. In their respective Green New Deal proposals, both Bernie Sanders and Elizabeth Warren have pointed to the necessity of transitioning from investor-owned utilities to public ownership as an essential step in creating a greener energy system and implementing climate resiliency strategies. The threat of climate change and the urgent necessity of conversion to renewable energy means that public ownership of the grid is imperative to implementing the sweeping changes needed.
The clear environmental benefits of such a proposal fit with recent environmental policies in California, a state that has a reputation for aggressive climate policy. Despite setting what was thought to be an ambitious emissions reductions target, carbon emissions recently dropped below 1990 levels a full four years ahead of the state’s own legal requirement.
Public power companies also create opportunity for the delivery of other services like broadband. Fiber-to-the-home strategies delivering high-speed Internet have been a godsend for cities like Chattanooga, Tennessee (whose public power company serves up top speeds at 500 times the national average), and public-owned utilities are well-equipped and willing to take them on.
If San Francisco’s takeover bid represents the beginning of a new era of thinking about utilities, there still remain some serious obstacles to its implementation. First, there have been no indications from PG&E that they’d be amenable to such a transaction, with some saying that the bid is insufficient from a dollars and cents standpoint. And previous attempts to bring San Francisco’s electric grid into public hands in 2001 and 2003 were stymied by then-Mayor Gavin Newsom, who’s currently the state’s governor. There may, too, be pushback from the unions that represent thousands of PG&E employees and contractors, who may bristle at the possibility of ownership change. Ultimately, it’s likely the judge presiding over these hearings will have as much a say in the final outcome as anyone.
Still, municipally-held utilities are likely to continue to become increasingly important as the policy proposals of the Green New Deal come into sharper focus, and no matter the outcome of San Francisco’s bid, it won’t be the only city to broach the issue. With better coverage, cheaper prices, lower carbon output, and better climate resiliency, along with a more responsive and democratic system of oversight, socialized energy grids may prove a potent tool in the transition to a sustainable economy.