Public takeover of PG&E proposed
San Jose mayor wants utility to be turned into a nonprofit, customer-owned cooperative
San Jose is leading a coalition of almost two dozen cities and five counties in calling for a takeover of Pacific Gas and Electric Co. by its ratepayers, a move that, if approved, would turn the state’s largest and most troubled utility into a nonprofit, customer-owned cooperative.
Industry experts said a takeover of such a large utility would be unprecedented.
“In terms of scale, this is in different territory,” said Stephen Bell, spokesman for the National Rural Electric Cooperative Association, which represents customer-owned electric utilities.
San Jose Mayor Sam Liccardo made the proposal in a letter to the California Public Utilities Commission dated Monday and signed by the mayors of 21 other cities, including Libby Schaaf of Oakland, and the heads of the board of supervisors in Marin, San Mateo, Santa Cruz, San Benito and Yolo counties.
“With a customer-owned PG&E, we can align the company’s financial interests with the public interest and restore reliable, safe utility service for our residents and businesses,” Liccardo said. “I stand with local leaders representing more than 5 million Californians urging the company’s transformation, to put PG&E’s days of under-investment, mismanagement and negligence behind us.”
The move comes as PG&E is reeling from
a series of blows that have shredded its reputation with the public and made it a punching bag for the state's politicians. After being convicted of criminal safety violations in the deadly 2010 San Bruno gas pipeline explosion, the utility's power lines were found to have sparked several devastating wildfires in the Wine Country in 2017 and the Camp fire in Butte County a year ago, the state's most destructive.
Facing mounting liability claims from the fires, PG&E filed for bankruptcy protection in January, citing $51.69 billion in debts and $71.39 billion in assets. But its woes continued last month with the implementation of widespread public safety power shut-offs, aimed at keeping its electrical equipment from sparking more fires, It caused the closure of schools and businesses and disrupted millions of people's lives. The utility also acknowledged that its wires may have sparked last month's biggest blaze, the nearly 78,000-acre Kincade fire.
But in response to the letter from Liccardo and other officials, PG&E said on Tuesday that the company is not interested in a hostile takeover.
“We are aware of proposals by various government agencies to acquire PG&E assets or to convert parts of the company to what is being described as a mutualized entity,” the utility said in a statement Tuesday. “We study and analyze each proposal. However, PG&E's facilities are not for sale and changing the structure of the company would not create a safer operation.”
The proposal also drew skepticism from the Edison Electric Institute, which represents investor-owned utilities such as PG&E.
“We don't live in Bolivia; they can't just take the system,” said Emily Fisher, general counsel for the Edison Electric Institute. “They are going to have to pay for it.”
Amid complaints last month about blackouts imposed on thousands of customers in San Jose, Liccardo had asked the city to look into taking over PG&E's operation within the city. That option remains under study, he said.
A “municipalization” of parts of a utility system has been carried out elsewhere, but it often involves years of wrangling over the costs — which can be substantial — of acquiring the private utility's hardware. Boulder, Colorado, has spent about a decade pursuing such a move. For San Jose, it probably still would involve PG&E delivering power that was generated elsewhere to meet the electricity needs of the city's million residents.
In recent days, Liccardo began phoning other local officials pitching a different idea: Forming a nonprofit cooperative that would raise capital to take over PG&E by buying out its shareholders. Liccardo argues that ratepayers are going to be stuck with the costs of PG&E's wildfire liabilities and infrastructure improvements anyway. But a nonprofit, he said, could be leaner in its operations because it would not have to pay dividends to shareholders or taxes to the federal government and could borrow more cheaply than a financially distressed corporation that is exiting bankruptcy.
“A PG&E that has to rely on junk bonds for its future is not a PG&E the public can rely on,” Liccardo said. “It's not much of a secret anymore about the fact that we're all responsible for putting this utility back on its feet. If we're going to be paying for it with higher rates, we'd better own the company.”
Liccardo stressed that such a move would not create a public utility, like those that supply power to Sacramento and Los Angeles.
“I don't want any elected officials on the board,” Liccardo said. “I want it run like a business.”
That idea did not sit well with advocates who favor a public utility model, which they argue provides greater transparency. Barry Moline, executive director of the California Municipal Utilities Association, representing government-run utilities, said he expects there will be a competing proposal to make PG&E a public utility.
Cooperatives are not public, they're private corporations, they decide how public they want to be,” Moline said. “I haven't seen any commitment to the elements of a public utility: open meetings, open records, no campaign contributions.”
One case in which a customer cooperative acquired a private electric utility was the purchase of Kauai Electric by the Kauai Island Utility Co-Op in 2002, Bell said, with the help of lowcost government financing from the U.S. Department of Agriculture Rural Utilities Service.
There also have been cases in which public utilities have sought private buyers, Fisher said, primarily because the corporations had greater borrowing ability to cover massive costs of infrastructure upgrades. JEA, northeast Florida's nonprofit, community-owned electric, water and sewer utility, is courting private buyers.
Fisher argued that even distressed private utilities have greater access to capital than those that are municipally owned or nonprofit. She said many aging government-run or cooperative utilities are facing daunting costs to modernize their infrastructure. In addition, with a publiclytraded company such as PG&E, any liability for accidents like wildfires can be shared by the company's shareholders instead of borne solely by ratepayers.
“The trade-off of having the investor-owned model is you're able to raise a lot more capital and the risk is shared between customers and shareholders,” Fisher said.
Any decision on restructuring PG&E would have to be approved by the bankruptcy court and the state's utilities commission. But the mayors think their idea is worth a look.
“Rather than reorganizing a failed company,” Schaaf said, “I support exploring a new customerowned utility that prioritizes people over profits and creates a safe, consistent, power supply for all residents.”