Power and profit: How PG&E fails California ratepayers and what to do about it

Introduction

Utility Dive recently published EWG’s plan for an alternative utility business model that would fairly rebalancethe power sector’s financial risks between ratepayers and power companies.¹ Following direction from their national lobbying organization, the Edison Electric Institute (part 2), utilities have, for the better part of a decade, used their dominant financial and political position as monopolies to systematically reduce their financial risk by underming their greatest competitors: utilities’ captive ratepayers. The main focus of their assault on ratepayers has been on quashing rooftop solar and deterring energy efficiency investments or the savings derived from them that, to utilities’ chagrin, reduce electric bills and overall electric system costs.

PG&E flexed its financial muscle with policymakers and regulators to shift costs from its own negligence and criminal behavior onto ratepayers. 

Pacific Gas & Electric’s controversial bid to effectively kill California’s popular rooftop solar, or net metering, program is a timely example of this problematic status quo. The solar fight is a proxy for the war between captive customers and electric utilities over the right business model. That war pits centralized, utility-owned, large-scale power plant investments against the new energy paradigm, with reduced costs and vastly improved resiliency. The new paradigm is characterized by a decentralized electric system, consisting of local power generation like solar, battery storage, efficiency measures, and customer ownership. And utilities see it as a threat to their bottom line.

And PG&E’s highly centralized approach to power, which fails to embrace innovation while hiking prices for ratepayers, is a long-running problem. The solar fight is just the latest example, PG&E’s history in California highlights the crossroads at which energy policy now stands: Is the goal to preserve utilities’ profits, or to embrace a cleaner, more equitable future?

Image

PG&E’s centralized utility business model has failed ratepayers and the state’s economy

PG&E’s centralized utility business model has failed Californians in substantial ways:

• High cost: Contrary to PG&E’s and its allies’ assertions that customer-owned rooftop solar is the cause of ballooning electric bills, the company’s massive buildout of its transmission system has cost almost $9 billion over the past decade, 70 percent of which had no regulatory approval (part 1). The nearly $3 billion electric utility transmission investment in 2020 will equate to $10 billion in ratepayer costs over the lifetime of the investment (part 1).

California electric utilities have some of the highest profit margins in the country (part 3).

• Gross negligence: PG&E’s negligence and criminal behavior in igniting wildfires has caused extensive damage and carnage. Its outrageous actions have led to numerous fires in the past decade, two of them the largest recorded in state history, burning more than 1 million acres, destroying thousands of buildings and killing more than 100 people. The fires led to hundreds of complaints, dozens of felony convictions and billions in damages (part 2). PG&E spent the better part of a decade thwarting regulators’ efforts to impose stringent management systems to protect power lines from falling on trees. The company knew that its transmission system posed a serious fire risk (part 2).

Displaced fire victims in Plumas County, Calif., following the 2021 Dixie Fires

Image

^{Photo: Associated Press}

PG&E exerts influence against least-cost investments and electric system design

The evidence clearly shows that a decentralized electric system is the most cost-effective option for Californians, more resilient than a centralized system, and that it would benefit all ratepayers, disproving utilities’ claims that solar benefits higher-income households only.

• In 2018, the California Independent System Operator, which oversees the state’s transmission system, estimated customer solar and energy efficiency investments avoided $2.6 billion in transmission and distribution system upgrades (part 1).
• Vibrant Clean Energy released a study showing that, by 2050, a decentralized grid, with solar plus storage, energy efficiency and other measures to balance supply and demand, would save $120 billion, compared to a centralized, renewables-dominated electric grid (part 1).
• The state’s own analyses underscore the advantages of distributed power (part 1).
• The emergence of virtual power plants and customer-owned solar plus storage can keep power flowing during the numerous blackouts PG&E imposes to avoid fires or during them, maximizing customer benefit and resiliency against climate impacts (part 1).
• Tens of billions of dollars in transmission investment could be saved with decentralized solar plus storage investments (part 2).

Contradicting itself, PG&E is working to derail the state’s rooftop solar program through egregiously high and unwarranted fixed charges, while also proposing a limited remote microgrid program for customers in remote areas it claims may benefit all ratepayers (part 2). But the state’s net metering program, which promotes customer ownership of solar and the development of virtual power plants, has been shown to provide system-wide benefits.

Importantly, the state can’t hope to reach its statutorily mandated renewables and climate goals without a robust distributed solar and storage market. Utility-scale solar and wind can’t possibly achieve those goals alone, facts PG&E fails to acknowledge.

PG&E’s history in California highlights the crossroads at which energy policy now stands: Is the goal to preserve utilities’ profits, or to embrace a cleaner, more equitable future?

Protecting the centralized utility business model, with state assistance

PG&E flexed its financial muscle with policymakers and regulators to shift costs from its own negligence and criminal behavior onto ratepayers. At the same time, it’s working to kill the state’s robust customer-owned solar market, even though solar can help reduce power bills. It’s a double whammy of bad planning that leaves ratepayers captive to higher payments each month.

• As a result of its negligence, which led to a gas explosion and, later, the Camp Fire, which resulted in the company’s admitting to 84 counts of manslaughter, PG&E poured millions into campaign contributions to lawmakers and bolstered its spending on lobbying (part 2). It paid off.
• PG&E maneuvered legislation to shift the costs of fire damage and fire risk exposure to to ratepayers (part 2), doubling down on its transmission investments with tens of billions in sunk and planned investment (part 3).
• It is unlikely fire victims will ever be fully paid from the funds PG&E owes, due to the structure of the deal to pay fire damages. The deal is tied to stock price, which still languishes, while PG&E is requesting a higher profit margin (part 3).
• PG&E’s influence led state regulators, in yet another state bailout, to propose changes to the state’s rooftop solar program in order to impose the highest charges in the U.S. for such a program, thus denying working-class families access to solar –and effectively destroying California’s solar market and killing tens of thousands of jobs (part 2).
• An exasperated federal judge overseeing PG&E’s probationary period for a gas explosion and brush fires underscored PG&E’s state-facilitated unwillingness to change: “Rehabilitation of a criminal offender remains the paramount goal of probation. During these five years of criminal probation, we have tried hard to rehabilitate PG&E. As the supervising district judge, however, I must acknowledge failure” (part 2). Despite the judge’s finding, the state recertified PG&E’s fire measures as safe (part 2).

The solar plan prompted extensive pushback, and regulators tabled the proposed rooftop solar decision in January, though it is still being considered. There are no signs PG&E’s long history of poor planning and influence with regulators will ever change.

Until PG&E and its utility cohorts are strategically and effectively reined in, the only possible conclusion is that the company’s financial health is more important to the state than compensation to fire victims, affordable utility bills, state-adopted climate policies, the state’s 68,000 solar workers and their employers, and energy equity for working-class families.  

Tricycle left behind in Paradise, Calif., in the aftermath of the 2018 Camp Fire

Image

^{Photo: Tina Lawhon via Shutterstock}

EWG’s utility business model applied to PG&E

EWG’s utility business model would create a more balanced policy and regulatory regime for PG&E customers. It is designed to hold the company responsible for its investment patterns and shift investment patterns to support a robust decentralized, consumer-friendly electric system.

EWG’s approach would lead to a system that can:

• Impose a more robust regulatory regime over infrastructure investment
• Make least-cost planning the priority, shifting investment to a decentralized electric grid
• Give working-class customers and communities of color access to clean energy
• Avoid rate structures that sustain the flawed centralized utility business model and hinder clean energy
• Prevent PG&E from shifting to ratepayers the liability for negligent and criminal behavior and attendant stranded costs (part 4).