PG&E Bailout: You’re Going To Be Paying For It

It was almost too easy. The precision-like fleecing of the People of the State of California, that is.

As predicted here late last year, when the Northcoast fires were still smoldering, I said there would be a historically epic showdown between the Big Three (PG&E and the other two electrical monopolies, Southern California Edison and San Diego Gas and Electric) and Sacramento legislators over a Bankruptcy-Bailout crisis.

I was correct on the Bankruptcy-Bailout scenario, but dead wrong on the epic nature of the battle. In fact, there wasn’t even much of a fight. It was more like an amicable agreement among friendly business partners settling a year-end dispute over profit-sharing.

The state Legislature late at night in the closing hours of the legislative year on Aug. 31, okayed a bill (SB 901) that features a so-called wildfire surcharge on customer bills that amounts to a bailout of PG&E and the other two electrical giants.

It would authorize PG&E to use a type of state-authorized bond to pay off billions of dollars in damages arising from last fall’s wildfires. The bill, if signed by Gov. Jerry Brown — Brown’s already tipped his hand, he’ll approve it — will serve as a template for all future wildfires, including the record-setting ones that are still burning now, where the Big Three are liable for damage from blazes started by their equipment.

PG&E’s customers would be responsible for repaying the special state bonds on their monthly bills, assuming the California Public Utilities Commission (PUC) determines that the company acted reasonably in its equipment maintenance prior to the fires. If the PUC finds the Big Three did not comply with reasonable fire safety maintenance, then the electrical companies and their shareholders have to pay for the damages.

Quite a deal. And, I believe you know already who’s going to be paying for the lion’s share of damages from wildfires started by a utility’s equipment.

There was an interesting coalition of organizations and businesses opposed to the bailout.

Mark Toney, of the Utility Reform Network said, “To make matters worse, PG&E and other utilities will get a blank check for anything they attribute to wildfire safety, despite PG&E’s previous failures. Utilities need only to slap a safety label on whatever they want customers to pay for and it will be approved, with no proof of cost-effectiveness required. The haste of the legislative process was unnecessary and led to a poor outcome for consumers. We still don’t know whether PG&E will face any liabilities from the Tubbs fire, or how much those liabilities could cost. Yet legislators rushed to approve a bailout bill on the assumption that PG&E will, once again, be held responsible. And they left room for future bailouts. The bill could leave PG&E’s customers paying for this bailout, and future ones, for decades to come.”

One of the prodigious loopholes in the law is there would be a limit to how much liability the Big Three are faced with. The bill provides for the PUC to conduct a “bankruptcy stress test,” to determine if a utility’s liability crosses the bankruptcy threshold; if so, any costs beyond that theoretical point would be passed on to ratepayers.

According to a Sacramento Bee report, Ratepayer advocates, manufacturers, agricultural groups and the state’s largest oil industry association quickly rallied against the proposal, calling it a “bail-out” for utilities that cause fires out of negligence.

“Our biggest concern is that manufacturers already pay industrial electricity rates that are more than 80% higher than the rest of country,” said Gino DiCaro, a spokesman for the California Manufacturers and Technology Association. “The fact that ratepayers would be on the hook for billions of dollars would be a problem for growth going forward.”

It was all the way back in the early 1900s, known as the Progressive Era, when folks figured out that certain sectors of our economy must be monitored and regulated because the typical forces of the free market could not control the resulting anti-competitive, monopolistic behavior inherent to such economic endeavors. That era established the creation of public commissions with broad regulatory authority over those industries.

Truly great leaders like Teddy Roosevelt, a grand old Republican, was a champion of that era. Markets could not control the resulting anti-competitive, monopolistic behavior inherent to such economic endeavors. Teddy used his big stick to bust the trusts, which is what folks called monopolies back then. He also brought the monopolies under their first public control.

Back then, another Progressive leader, Tom Johnson, Mayor of Cleveland (1901-1909) said this about private electric companies:

“If you do not control them, they will in time own you. They will destroy your politics [and] corrupt your institutions.”

Truer words have not been spoken since then.

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Jim Shields is the Mendocino County Observer’s editor and publisher, and is also the long-time district manager of the Laytonville County Water District. Listen to his radio program “This and That” every Saturday at 12 noon on KPFN 105.1 FM, also streamed live: http://www.kpfn.org

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MS NOTES: The biggest beneficiary of this bailout will be PG&E’s insurance companies whose liability has now been capped and who have announced that they will jack PG&E’s rates way up to recoup their stingy payouts. PG&E will then pass those hiked up rates along to the PUC as a [very large] cost line item in their budget to help justify their next rate hike. You might think that the insurance companies would be pressuring PG&E to take more preventive steps to limit their insurance liability (like they do on everybody else), but you’d be wrong. Why should insurance companies require more safety investment if ratepayers are going to bail everybody out anyway? There are also banks, bondsmen, and lawyers who will make out very nicely in this bailout. After all, banks and insurance companies and stockholders would have a lot more trouble recouping their loans and insurance paybacks if PG&E was forced to declare bankruptcy and go into receivership. 

PS. Have you ever noticed that nobody talks about nationalizing or “state-izing” the three big utility companies? Better just to let them do whatever they please and charge the ratepayers for their negligence under the guise of (non-existent) “regulation” than to even suggest government owned and operated utilities which would be denounced as “socialism” or something. (Never mind that roads and fire departments are “socialized” or “nationalized” and nobody complains about mismanagement or excess liability. Even then, “nationalized” utilities would still translate to most of the actual work being contracted out to private companies. But nationalization would mean no stock market involvement, no insurance companies, no banks and high-interest loans, and — OMG! — maybe higher taxes — but with much lower rates — which we just can’t consider.) And yes, I know that doesn’t apply to our under-performing, overpriced schools — which could easily be run a lot better and cheaper but still should not be privatized.