Non-Profit Utilities Could Cure What Ails California Electricity


Severin Borenstein at the Energy Institute at Haas, asks “Would Non-Profit Utilities Cure What Ails California Electricity?” I am posting my response here as that I find his post overlooks several important points and distinctions.

I’ll start by saying I wrote an op-ed in the Sacramento Bee in the early 2000s noting that creating a new municipal utility was not going to deliver the same low rates as existing munis and I’m still aware that such a transfer is unlikely to reduce rates much. But it does change the governance structure in a way that is likely to be more accountable and less influenced by the private interests of utility shareholders. Communities are joining together to push for acquisition of PG&E by a cooperative, which would have a similar governance structure to a municipal utility.

First, the complaint about government is largely about agencies that I will call “ministerial” or “administrative”. These agencies issue permits and licenses or provide social services. In contrast, the government agencies that deliver utility services, which are “enterprises” largely deliver service with few complaints. About 80% of water utilities and almost all wastewater utilities are publicly owned. I work in the water arena as well, and the only utility that I hear complaints about from customers is LADWP (both water and power sides). (The SDCWA-MWD fight is between agencies’ managements, not from customers). On the other hand, all three or California’s electric IOUs are the target of customers’ ire. And the IOU staffs (which I have frequent contact with) are no better than government employees in their responsiveness or competence. One advantage the enterprise agencies have over the ministerial/administrative ones is that they generally pay a higher salary so employees are motivated in much the same way as those in the private sector. Moving from oversight by a ministerial/administrative agency (CPUC) to management by an enterprise utility should overcome the problem of recruiting competent motivated staff.

Second, shareholders shoulder very little risk now, particularly in California. I testified in the IOUs’ rate of return case and we asked for the amount of disallowances that shareholders had to bear over the last two decades. Other than SDG&E’s 2007 wildfire costs due to negligence on the utility’s part, they came pack with amounts that were in the tens of millions, which amounts to less than a 0.1% of their revenues collected over that period. Utilities’ generation investment is now so protected that the CPUC reversed itself last year and removed the 10 year recovery cap from exit fees for generation that the utilities built knowing the cap existed. They are now getting bonus dollars! (Same thing happened with Diablo Canyon in 1996.) Yet the utilities are claiming in that rate case that the return on equity should be increased even further! I have a blog post about how the current return is already too high. (Part 2 is the next day.)  Public ownership in contrast can reduce the return on capital from close to 10% (before tax) to 5% or less, which can cut rates substantially.

We can see how PG&E in particular has been incompetently managed for decades. I posted about its many foibles since the 1960s as well. The supposed incentives and efficiencies of the private sector have failed to materialize for California utilities, and meanwhile we pay higher costs for capital with no real risk mitigation. (Ratepayers still had to pay for PG&E’s debts after the 2000-01 energy crisis, and it looks like the same may happen again.)

Finally, the question arises as to whether municipalizing piecemeal would create inequities. The premise of the statement is that the current economic distribution is equitable. But the fact is that rural residential customers in the wildland/urban interface (WUI) have not been paying their full share of their costs and have been heavily subsidized by urban customers. Those customers in the WUI tend to be better off than average (poor rural customers are more likely to live in agricultural communities that are not subject to the same fire risks and for whom service costs are lower), so we already have an adverse wealth transfer in place. And those subsidies have facilitated expansion of housing into those high risk areas that also encourage longer commutes with more GHG emissions.

The better question is how can the rural service areas be better served in the future without relying on the traditional utility structure? Moving toward microgrids and other DER solutions to improve reliability while reducing fire risk is one solution. Spending a $100 billion on undergrounding lines to be paid for by everyone else is NOT a good solution.

2 thoughts on “Non-Profit Utilities Could Cure What Ails California Electricity

  1. Richard McCann Post author

    Governor Newsom opposes PG&E’s proposed settlements with fire victims and and insurance companies. “The resolution of this bankruptcy must yield a radically restructured and transformed utility that is responsible and accountable,” he wrote. Among other things, he demanded an entirely new slate of directors who are subject to state approval, and a structure that would allow PG&E’s operating license to be transferred “to the state or a third-party when circumstances warrant.” He also took issue with its financing plan, saying it relied too heavily on borrowed money and would hinder its ability “to make billions of dollars in safety investments.”


  2. kakatoa

    A 5th PSPS is likely going to occur in Placerville early next week as a big winter storm is going to be preceded by a wind event. The Placerville substation on Broadway has four semi truck sized generator in place to bring PART of town back up in a quick fashion IF the snow event doesn’t prevent the checking of infrastructure…..

    Our generator is fueled up and ready to go (it’s monthly maintenance was performed a few days ago as we got a call from PG&E stating a PSPS was initiated at our location, or would be shortly). We lucked out that the local on the ground details were such that the PSPS was cancelled by phone about 5 hours after it was approved for implementation).



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