The Wall Street Journal article “PG&E: Wired to Fail” by Russell Gold,
Rebecca Smith and Katherine Blunt, was, overall, a good, in-depth, article that lays out the relevant facts for why PG&E allowed its infrastructure to become so old that power lines fell and caused massive wildfires, killing many people.
It doesn’t do as good of a job explaining the significance of the facts that it cites, leaving it up to the reader to “put them together”. I thought I might synthesize the relevant facts from the article here, and draw the conclusions that the authors don’t explicitly draw.
The article notes that, at several points in the past, the state government of California mandated that PG&E switch to “green” sources of energy, mainly solar energy and wind.
“As regulators pushed for more renewable energy, the combination of high winds and sparks from a damaged San Diego Gas & Electric power line ignited what came to be called the Witch Fire in Southern California, killing two people, injuring 45 firefighters and destroying 1,140 homes.”
“For the past 15 years, PG&E has plotted a round trip from one bankruptcy to another. In between, it navigated the aftermath of a catastrophic natural-gas pipeline explosion and a series of increasingly demanding green-energy mandates from state regulators.”
“In April 2011, seven months after the San Bruno explosion, California’s new governor, Jerry Brown, signed legislation raising the percentage of state electricity that must come from renewables to 33% by 2020, up from the previous state goal of 20% by 2010.”
“In September 2018, Gov. Brown, months from leaving office, signed a bill that again raised the state’s renewable-energy target, this time to 60% by 2030.”
This is significant, because it causes the cost of power generation to go up. It’s simple Economics. If solar and wind were cheaper than other, more traditional, forms of power generation, then power companies would have already switched to them. (That would allow them to generate power at a lower cost, thereby increasing their profits.) The reason PG&E didn’t switch voluntarily, and had to be forced by the government to do so, is because there is a higher cost from producing with solar and wind.
“CALIFORNIA REGULATORS kept up the pressure to meet the state’s aggressive renewable energy goals.
By 2012, PG&E was spending more than $1.2 billion a year to meet the targets, more than double what it spent in 2003, according to PG&E filings, and it was projected to top $2 billion by 2015. Mr. Peevey, the utilities commission head, addressed concern that Californians faced a “rate bomb” as the deals kicked in.”
The second fact that has to be understood about power utilities is that they are heavily regulated by the government in terms of what price they can charge. The supposed rationale for this is that since only a limited number of companies are allowed to operate as utilities, they are governmentaly enforced monopolies that must have their prices regulated. I won’t get “too deep into the weeds” on this point, but there is no reason, in principle, that different companies couldn’t all enter the power generation business. (Power lines can be laid almost without limit underground or even through the air, or people can move, if the power company in one area charges too much, to another city where the power company charges less.) What you should take away from this paragraph is this point: Power companies cannot just easily raise prices when their costs go up like like less regulated industries. They have to get permission from the government, usually some sort of board, which takes time and money, and there will be political pressure for the regulator to not let prices go up to reflect actual costs.
When you combine increasing costs to a power company from being forced to switch to “green energy sources” with the inability to fully pass that cost on to the consumers, the power company has to make up that difference somewhere. If it reduces profits, it reduces the number of people willing to invest in the power company, which reduces its ability to purchase new equipment, such as power lines. It means the company has to continue generating power with aging equipment. If it keeps profits high enough to keep investment coming in, it will have the same problem. It can’t simultaneously have: (1) higher production costs, (2) pay the same amount of profit to investors, and (3) keep prices the same to customers. Something has to give, and the “short term solution” is to stop spending money on the maintenance of equipment. But, the “long-run” eventually caught up with California:
“It proved to be especially challenging for a plodding utility undergoing management upheaval, heavily regulated and saddled with aging, neglected equipment.
Executives were so focused on the past and the future that the present sneaked up on them. PG&E’s electric lines, after years of deferred maintenance, were threatening drought-parched California. “
“PG&E’s Caribou-Palermo transmission line was built in 1921 through the Plumas National Forest. Part of a larger network that carried electricity from the Sierra Nevada to the Bay Area, it was so old that it had been considered a candidate for the National Register of Historic Places. PG&E had told federal regulators it planned to replace many of the towers and hardware on the line but postponed the work several times…
At about 6:15 a.m. on Nov. 8, 2018, an iron hook holding up a 115,000-volt line broke, dropping the live wire and sparking a blaze.
Thirty minutes later, what would come to be known as the Camp Fire was out of control. Officials ordered the evacuation of the nearby town of Paradise, home to 26,000 people. The town was soon burned to the ground. Within hours, the fire destroyed 13,983 homes and killed more people, 85, than any other California wildfire.”
What is the solution to this problem? It is two-fold.
First, California needs to withdraw state mandates on a switch to solar and wind, which will bring down the cost of power generation.
Second, California needs actual competition in electricity generation. This doesn’t mean just competition in generation, but distribution. In exchange for eliminating their current legal monopolies on generation and distribution, power companies would be free to charge whatever rate people are willing to pay them.
Of the two, the second is actually the most important. Even if the state mandates on the switch to renewables stayed in place, as long as the utilities can charge customers higher prices to reflect this, then it will not affect the ability of utilities to maintain and replace aging equipment. (I think both of my solutions should occur, since I think the concerns over “climate change” are either illusory, or overblown, but, that is a debate for another time.) The important point to recognize is that there is no free lunch. If the people of California want to reduce so-called “greenhouse gases”, then they need to be prepared to pay for it with higher utility rates. (Otherwise, they’ll continue to “pay for it” with forest fires.)