Electricity Markets

New proposal calls for PG&E to be replaced with public power utility

California Gov. Gavin Newsom is being urged to consider a proposal that would replace Pacific Gas & Electric with a public power utility.

It is the latest in a series of proposals in the state to convert the bankrupt utility into a public power entity in the wake of a series of major power shutoffs implemented by PG&E intended to mitigate the threat of wildfires.

In a Nov. 13 letter to Newsom, Jeff Shields, former General Manager of the South San Joaquin Irrigation District in California, outlines the reasons for why PG&E should be replaced with a public power entity and attaches a set of principles that would govern the new utility in several areas including accountability, a transition to a new regulatory regime and a plan for the future.

“You recently called for a ‘Reimagined PG&E,’” Shields wrote to Newsom. “You are absolutely correct.” “Today, when making any decision, PG&E executives ask themselves ‘How will this benefit our shareholders?’ Public Power utilities ask a different question: ‘How will this benefit our customers?’”

Shields noted that there are “thousands of examples of customer owned, not-for-profit, utilities operating successfully across the U.S. as well as California. It is a business model that is proven to work for the people. A true publicly owned utility can and should be awarded equivalent to the PG&E franchise service territory, and remove the Obligation to Serve currently held by PG&E.”

Shields went on to say that “not only is it time for a change of utility ownership and business model, but also a change for the core philosophy of how our energy is delivered so it actually benefits the people of California, keeps them safe, and accomplishes our aggressive carbon reduction goals.”

He noted that he recently met with several “seasoned professionals with legal, economic, managerial, organization and finance backgrounds to explore the framework for what a California Public Owned Utility should look like.”

Attached to the letter are a set of “Public Power Principles for a Reimagined PG&E.”

An accountability principle for the new entity calls for 100 percent transparent decision making, compliance with applicable public record and open meeting rules, preserving a consumer interest intervener structure and no organized political corporate contributions or activities, except education.

The “Transition to a New Regulatory Regime” principle calls for:

  • Elected and/or appointed board with public engagement and inclusion as the core philosophy;
  • Over one to two years, transition the rate regulation role of the California PUC to the public power agency’s board, “and pursue reform to shift to an appropriate long-term common-sense regulatory structure appropriate for the new entity(ies) and customers” and;
  • Preserve current labor agreements for both represented and non-represented employees. 

The “Plan for the Future” principle calls for:

  • Immediately creating a governance review task force to determine the governance and ownership structure of a new organization with possible potential break-up into multiple citizen-owned or publicly owned organizations;
  • Breaking out the transmission system into a separate not-for-profit entity to significantly lower costs and increase transparency of operations, maintenance, and capital expenditures;
  • Facilitating three publicly owned utility proposals underway to take place and examine other local public utility options as they arise in a fair and timely manner (San Francisco, South San Joaquin Irrigation District, Valley Clean Energy); and
  • Facilitating other cities/regions interested in creating publicly owned utilities, municipal utility districts, or community-owned as appropriate. Establish a reasonable but rigorous process for considering creating a publicly owned utility.

Other principles cover rate impact, supporting and facilitating state climate goals, power supply procurement and addressing the liability cycle.

“We are eager to work with you, the Strike Team, and the legislature to pass a bill that will create a public utility district with the same exact service territory and assume all assets and obligations currently in the hands of PG&E,” Shields wrote in his letter to Newsom.

Calif. scoping plan for PG&E, including possible publicly owned option

Newsom in early November called on various stakeholders to meet in order to accelerate a consensual resolution to PG&E’s bankruptcy cases that will lead to the creation of a new entity.

At the same time, Newsom warned that if the parties fail to reach an agreement quickly “to begin this process of transformation, the state will not hesitate to step in and restructure the utility” and said that “all options are on the table.”

He also noted that a new strike team would be formed that will be led Ana Matosantos, Newsom’s Cabinet Secretary.

Other public power proposals in the state

In a Nov. 4 letter to California utility regulators, a large group of California mayors and county officials said that there are several compelling reasons for transforming PG&E into a customer-owned utility including being able to raise capital from a broad pool of debt financing in amounts substantially greater than can an investor-owned PG&E, and at much lower cost.

“While our immediate attention focuses on the recovery of our neighbors and communities from recent tragic fires and power shut-offs, we have serious concerns about whatever emerges from the bankruptcy of Pacific Gas and Electric Company and its parent, PG&E Corporation,” the mayors and county officials said.

“We write in our individual capacities as elected and appointed leaders, but as our coalition of local leaders grows in the weeks ahead, we will advocate these positions with our boards and councils as well and seek their support.” 

In October, PG&E instituted a series of series of major power shutoffs aimed at mitigating the risk of wildfires.

PG&E recently rejected a $2.5 billion offer from the City of San Francisco to purchase substantially all of PG&E’s distribution and transmission assets needed to provide retail electric service to all electricity customers in the city.

San Francisco Mayor London Breed and San Francisco City Attorney Dennis Herrera outlined the proposal in a Sept. 6 letter that was sent to William Johnson, CEO and President of PG&E Corp., and Andrew Vesey, CEO and President of PG&E.

“We aren’t surprised by PG&E’s response so far,” Breed and Herrera said. “We’re also not giving up. Now more than ever, it is clear that we must take back control of San Francisco’s electric service and achieve energy independence.”

Meanwhile, the board of California community choice aggregator Valley Clean Energy recently submitted a $300 million bid to purchase PG&E's lines and poles and other electricity distribution assets within Yolo County, Calif.

“The purchase would enable the creation of a locally owned and operated public utility that the Board has concluded would result in a more successful, efficient and safe electricity system,” the CCA said.

In June, the South San Joaquin Irrigation District (SSJID) forwarded to Newsom a letter signed by the Mayors of the Cities of Escalon, Manteca, and Ripon renewing the cities’ endorsement of SSJID’s 15-year bid to takeover PG&E electric service for these Central Valley communities.

“With PG&E’s damaged reputation and seemingly complete loss of confidence by the public, it’s difficult to see how they come through this remaining intact,” said Barry Moline, executive director, California Municipal Utilities Association. “There’s a lot of investment that must be made to fix the delivery system. Ultimately, people are asking ‘who do we trust to do it properly, the private, for-profit PG&E, or a new not-for-profit public entity with open books, records, meetings, and an elected governing board encouraging public engagement?’”