Electricity Markets

California PUC mulls public power option for PG&E

The California Public Utilities Commission began a proceeding in late December that, among other things, will look into the possibility that some or all of Pacific Gas and Electric could be reconstituted as a publicly-owned utility or utilities.

 The investigation will examine several corporate business and governance model options, with an emphasis on drastically improving public safety. For the PUC to investigate converting an investor-owned utility into a publicly-owned utility “is really important,” Barry Moline, executive director of the California Municipal Utilities Association, said. “Publicly owned utilities have a great safety track record and our focus is always on community needs and protecting the public.”

Conversion of a private utility into a publicly-owned utility is relatively rare, but it does happen. One of the most notable examples was the 1985 conversion of Long Island Lighting to state ownership as the Long Island Power Authority, following the cancellation of the Shoreham nuclear power plant. In the early 2000s, several new municipal electric utilities were created across California in response to new deregulation laws.

The PUC investigation is the second phase of a proceeding the commission began in August 2015 to determine whether PG&E’s and PG&E Corp.’s organizational culture and governance prioritize safety (I.15-08-019). PG&E Corp. is the parent company of PG&E.

The PUC opened the 2015 investigation in the wake of the Sept. 9, 2010, San Bruno natural gas pipeline explosion that killed eight people and injured dozens.

In its report on the San Bruno incident, the National Transportation Safety Board determined that the incident was an “organizational accident” marked by a “pervasive lack of proactive measures to ensure adoption and compliance with a safety culture,” including practices and violations that predated the San Bruno incident and, had they been corrected, could have prevented the lethal explosion.

Despite the fact that PG&E faced the prospect of over $1 billion in fines and penalties stemming from the NTSB’s investigation, the PUC said it was motivated by the “persistence of safety incidents” after the San Bruno explosion to undertake its 2015 investigation to determine whether “this persistence is rooted in PG&E’s organizational culture and governance” and its “safety culture.”

PG&E’s problems grew even more dire as the new year opened. In a court filing, California Attorney General Xavier Becerra raised the possibility that the utility could face criminal charges, even murder charges, in relation to the late 2018 Camp Fire in Northern California that killed at least 86 people. PG&E has acknowledged that malfunctions of some of its equipment may have been responsible for the fire.

In addition to looking into the possibility of converting PG&E into a publicly owned utility, in its Dec. 21 ruling, the California PUC is also investigating whether PG&E’s board of directors should be replaced by directors with a stronger background and focus on safety; whether PG&E should retain new corporate management; whether the utility’s natural gas and electric distribution and transmission divisions should be split into separate companies controlled by a holding company; whether the utility’s regulatory authorized returns should be linked to safety performance; whether the utility company should be reorganized on a regional basis, and whether the PUC should revoke holding company authorization for PG&E Corp.

As a result of the first phase of its safety investigation, the PUC in November 2018 ordered PG&E to implement 60 safety improvements.

In the second phase of the investigation, parties may propose options other than those listed by the PUC, but they must have a “viable transition process from the status quo” to be considered by the PUC. Opening comments are due January 30.

“We must be careful and practical,” PUC President Michael Picker said in a statement. “This process will be like repairing a jetliner while it’s in flight. Crashing a plane to make it safer isn’t good for the passengers.”

“We are closely watching this process,” Moline said. “To the extent they talk about publicly owned utilities, we intend to engage with the PUC to be sure that it is discussed in an accurate way.”