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Could California Take Public Ownership of PG&E?

The debate around private ownership of essential utilities is becoming a national issue.
Protesters hold signs as they march to the Pacific Gas and Electric headquarters in San Francisco, California, on December 11th, 2018.

Protesters hold signs as they march to the Pacific Gas and Electric headquarters in San Francisco, California, on December 11th, 2018. After PG&E filed for bankruptcy late in January of 2019, a number of activists are calling for California to de-privatize the company and assume control of its operations.

Last week, Pacific Gas & Electric, the beleaguered gas and electric provider for some 16 million residents across the state of California, formally filed for bankruptcy protection. It's a move that's long been anticipated: The investor-owned utility company has sustained billions of dollars in losses after a rash of major wildfires—exacerbated by climate change—damaged transmission lines throughout the state and brought a litany of lawsuits. According to court filings, the company now has more than $50 billion in liabilities, despite being cleared of responsibility for 2017's Tubbs Fire, then the most destructive wildfire in California history.

The announcement of the company's pursuit of Chapter 11 protection was met with a surprising reaction. The company's stock price surged, registering one-day gains as high as 17 percent, resulting in a flurry of coverage in the financial press. "Maybe there's a future not just for this utility," wondered Chris Hill on the Motley Fool podcast, "but a future for investing in this utility?" Just one day prior, Bloomberg Businessweek ran an article extolling the virtue of utilities as an investment class, noting increased upside due to that very same climate change that has added to PG&E's woes. "A warmer-than-normal summer last year led to increased air conditioner use, boosting earnings," the article notes.

The fate of PG&E remains uncertain. While the financial sector cozies up to the company, the California Public Utility Commission is considering breaking up the regulated monopoly, and talks of a bailout linger. Yet a third option has slowly been gaining popularity among activists in the state: public ownership.

Taking PG&E out of the hands of investors and turning it over to public control would represent a major transition for the utility sector in California, which has seen similar situations before and opted against de-privatization. In 2001, after the deregulation of the state's energy markets led to a wave of blackouts, PG&E was forced to file for bankruptcy protection, then one of the largest such cases in history. That filing resulted in a multibillion dollar bailout, courtesy of the state's treasury, and reorganization. PG&E was allowed, more or less, to return to business as usual.

While conversion of PG&E to a true publicly held utility with local, democratic control would represent a decisive break from California's past, the call for public ownership of utility companies has quietly emerged as a national issue. Advocates across the United States are calling for a reimagining of the widespread corporate public utility model toward more democratic management: Elected officials staffing utility company boards, establishing budgets, policies, and setting prices, and holding regular meetings open to public comment.

In Providence, Rhode Island, activists have called for the nationalization of electricity provider National Grid. After protesting proposed rate hikes, the Providence chapter of the Democratic Socialists of America launched the #NationalizeGrid campaign, a multi-tiered effort aimed at ending utility shutoffs, limiting rate increases, and establishing democratic control over the primary gas and electricity provider in the state of Rhode Island. "We believe wholeheartedly that the state's utility system should not be in private hands and making profits for shareholders," says Will Speck, a member of the group and spokesperson for the campaign.

While the campaigns in Rhode Island and California may seem fledging, they're not without precedent. There's already one state in the union that provides electricity to its businesses and residents via community ownership rather than for-profit corporations: Nebraska.

Despite its status as a Republican stronghold, Nebraska has long been a pioneer of the socialization of energy distribution. It's home to some 166 different community-owned utilities, servicing its population of nearly two million. And public ownership has not proven to be an expensive luxury: Public power rates in Nebraska are lower than the national average, with the cost per kilowatt hour lower than all its neighboring states. "That's because local, not-for profit utilities have the power to put their neighbors first," reads the Nebraska Power Association website.

Nebraska hasn't always been home to publicly held utilities. In the early 20th century, more than a third of the state's utilities were owned by private corporations. But a wave of laws passed in the New Deal era led to the dramatic restructuring of that sector. Passage of the Public Utility Holding Company Act and the Rural Electrification Act of the mid-1930s broke up corporate electricity monopolies and provided financing for infrastructure investments; by 1949, Nebraska had become the first and only all-public power state. While smaller publicly owned utilities groups have sprung up across the country, including the Los Angeles Department of Water and Power, no other state has been able to establish public power on a statewide level.

The Cornhusker state's community-owned utilities offer a blueprint for what a publicly owned grid might look like. In addition to elected officials staffing utility providers, there's also a Power Review Board, with five seats appointed by the governor, that's tasked with long-term planning. This has allowed the state to pursue some renewable energy initiatives like the Ainsworth Wind Energy Facility, one of the nation's largest publicly owned wind farms. (Notably, the state does still rely heavily on coal.)

According to advocates of publicly held utilities, the threat of climate change, and the urgent necessity of conversion to renewable energy means that public ownership of the grid is imperative. "The biggest reason for the push toward publicly owned utilities is the broader explosion of energy trying to combat climate change, especially related to the recent IPCC report," says Speck, referencing the landmark United Nations report published last year that warned that sweeping environmental changes would be needed in the next 12 years to keep global temperature increases in check. Speck notes that the #NationalizeGrid campaign hopes to go beyond the Nebraska model, which has been criticized for lagging when it comes to its efforts to curb emissions.

With the Green New Deal ascending in popularity and prominence, the call to nationalize and democratize energy production and distribution will likely get louder as an important climate policy position. That may well appeal to decision-makers in California, a state that has a reputation for aggressive climate policy and where carbon emissions recently dropped below 1990 levels a full four years ahead of the state's own legal requirement.

Recently sworn in Governor Gavin Newsom has yet to give any indication that public ownership of PG&E is being seriously considered, but the company's bankruptcy filing does allow the opportunity for the state to lead on a nationwide issue. It may well be a necessary step in advancing California's environmental agenda, which, as of September, included a law requiring that 100 percent of its electricity come from renewable sources by 2045.