Californians should always be skeptical when their politicians overhaul the state’s electrical utility system while promising more efficient, less polluting, and reasonably priced service.
Californians get their juice from a mélange of “investor-owned” and municipally operated utilities. Inevitably, micromanagement of such a complex system via legislation and regulatory agencies becomes an exercise in political horsetrading.
To reach a conclusion, politicians need consensus among special interest “stakeholders” and to get to that point, each must get something tangible. The resulting mish-mash thus becomes politically feasible, but may not result in any net benefit to the larger ratepaying public.
The classic example of the genre is the 1996 utility “deregulation” legislation that promised something for everyone but soon resulted in blatant manipulation by some energy producers, the bankruptcy of one major utility (Pacific Gas & Electric), the near-insolvency of others, and – inevitably – higher consumer bills.
Later decrees on shifting power to “renewable” sources such as wind and solar, and an abortive effort to fold California’s electric grid into a Western regional entity continued the string of political meddling – all with the best of intentions, we were assured. But the net result has been that Californians pay the nation’s highest, or nearly highest, rates for their electrical power – a major component in the state’s very high cost of living.
Here We Are Again
So here we are again.
PG&E is once again bankrupt, this time because of $30 billion in claims for damages from horrendous wildfires that its downed electric lines appear to have caused. Bankers are threatening to downgrade all California utilities’ credit ratings, and shareholders, particularly large hedge funds, are clamoring for financial relief.
For the state’s new governor, Gavin Newsom, it’s a crisis reminiscent of what happened when PG&E went bankrupt the first time during Gov. Gray Davis’ first term.
Davis mishandled that 2001 crisis and it contributed to his recall by voters two years later, a reminder of the high political stakes.
However Newsom, unlike Davis, didn’t freeze. He promised to deal with the twin problems of utility solvency and wildfire safety and the result is legislation that once again overhauls utility operations.
To bolster utilities’ solvency, Assembly Bill 1054 makes a huge change in their liability for wildfire damages under the doctrine of “inverse condemnation.”
If utilities have proven that they are operating as safely as reasonably possible under new standards, they will be presumed to be at least partially faultless for fires. As a state Senate analysis puts it, “In this respect, the burden of proof would switch to other parties … to raise ‘serious doubt’ as to the (utility’s) reasonableness.”
We Won’t Know the Consequences
To offset that lessened liability, the legislation creates a fund, as much as $48 billion, from contributions by utilities’ shareholders and consumers, to pay for wildfire damages, and allows utilities to tap ratepayers for extraordinary damages if they have operated safely.
True to form, the legislation takes care of some influential interests, such as utility unions and renewable power suppliers. It would make it very difficult for portions of utilities to be sold off and protects supply contracts.
So what’s the bottom line for consumers? No one knows.
Newsom aides promise that the effect on power bills will be minimal. However, to help fill the wildfire damage fund, the legislation extends a utility bill surcharge that was imposed during the Davis era to pay for power purchases. There’s also no real limit on ratepayer burdens for future catastrophic wildfires.
As with previous “reforms,” we won’t know the consequences, both real and political, until they happen.
CALmatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.