PG&E’s Problem Isn’t Corporate Greed

How quickly PG&E has gone from a national leader in clean energy development to a political football.

PG&E's planned blackouts in October led to a frenzy of finger pointing. Trump laid blame at the feet of Gavin Newsom for poor forest management. Newsom, meanwhile, lambasted PG&E, positing corporate profiteering as the cause of its failure to properly maintain California's grid, tweeting, "Your years and years of greed. Years and years of mismanagement. Years and years of putting shareholders over people. Are OVER."

Trump is wrong, of course, Newsom isn’t to blame. Rising fire risk and neglected grid maintenance far predate the Governor’s tenure. But Newsom’s narrative fails to identify some basic drivers of PG&E's grid neglect.

PG&E has been pressured by investors, ratepayer advocacy groups, and regulators to provide a number of services, but in the past grid maintenance has not been properly valued, making other stakeholders complicit in PG&E’s lack of foresight.

California’s fires have grown larger and more expensive in recent years owing principally to more development in high-risk areas and more abundant fuel from successful fire suppression, with climate change acting as a risk multiplier. But why are fires starting in the first place? Aged and poorly maintained power lines, increasingly susceptible to damage in extreme wind events, are a major and widely-acknowledged culprit. Unlike many other human causes of wildfire, the number and size of powerline fires have not declined in recent decades.

Fixing this poorly maintained grid is going to be a massive undertaking. Pacific Gas and Electric Company (PG&E) was formed almost 115 years ago, and is responsible for providing electric and natural gas services for a 70,000-square-mile area in northern and central California. This area encompasses over 100,000 miles of electric distribution lines and nearly 20,000 miles of interconnected transmission lines. Many of the transmission and distribution lines in the state were installed decades ago, and have been poorly maintained.

How could PG&E systematically neglect California’s grid to such a degree? While PG&E is not blameless, the system of pressures and incentives in which it operates has primed it for failure.

For one, as an investor-owned utility (IOU), PG&E maximizes profits for shareholders by investing in new energy development rather than maintaining existing infrastructure. Over the course of decades, this incentive to focus on new projects has worked against maintaining existing infrastructure.

PG&E also faces stringent pressure from consumer advocacy groups, which have been myopically focused on keeping rates low. The Office of Ratepayer Advocates (ORA), an independent consumer advocate within the CPUC, has a statutory mandate to "obtain the lowest possible rate for service consistent with reliable and safe service levels." This focus on the lowest possible cost incentivizes paying for immediate needs over proactive solutions such as grid maintenance.

Regulators have also been focused on keeping costs low, with similar consequences. PG&E is regulated by the CPUC and the Federal Energy Regulatory Commission (FERC). The CPUC reviews the rates PG&E can charge for its service, while FERC determines the utility's interstate transmission charges. The CPUC is also responsible for ensuring utilities integrate risk analysis and risk management practices into their operations. Since the disastrous southern California fires of 2007, CPUC has had a decade to recognize the need to start adapting the grid to extreme wind events in California. Given this system of oversight, regulators should have played a leading role in identifying the risks of an aging grid, and they should have properly structured rules and incentives so that PG&E executed the necessary planning and investment in grid maintenance.

When faced with loss of life and property, it is tempting for decision makers to paint PG&E as a greedy corporate villain.

PG&E will undergo reorganization as a result of declaring bankruptcy this year. While this situation comes with its own set of challenges, it also presents an opportunity. The CPUC should appoint an advisory board dedicated to upgrading and maintaining the grid, and should ensure a set proportion of funds is designated specifically for resilience to extreme wind events. It will be PG&E’s responsibility to disclose the full scale of necessary upgrades and ensure that the areas with the highest risk are prioritized for investment.

In addition to state resources, the Department of Energy could help solve the problem by investing federal dollars in new technologies, materials, and practices to help the grid withstand extreme wind events. These investments could help prepare the grid for other types of extreme weather across the country. The DOE and the state of California could also develop programs to train the new workforce that will undoubtedly be needed to implement these grid upgrades.

When faced with loss of life and property, it is tempting for decision makers to paint PG&E as a greedy corporate villain. But the oversight system that resulted in the current disrepair of the grid is something that those same decision makers could have fixed. There is no single villain in this story, only a huge piece of infrastructure that was out of sight and out of mind for far too long. Now that the full scale of the grid’s vulnerabilities has become devastatingly apparent, it is time to follow through on some major changes to how it is valued and maintained in the future.

Read Part One of our fire series here.