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California’s largest utility, PG&E, has seen its fair share of woes in recent years. Not only did its transmission lines spark the deadly Camp Fire but this past January it filed for bankruptcy as a result of its mounting legal claims. This bankruptcy has sparked questions about the future of utilities and if more localized (or distributed) energy is the solution for the future of our energy needs. Now, the City of San Francisco has offered $2.5 billion to buy out PG&E’s electrical grid that serves the city, a potential first step toward separating from the giant utility.
The money for the PG&E equipment would come from bonds approved by voters in June 2018, and would be paid off by customers through their electric bill.
Customer rates would be the same or lower than current PG&E rates, according to San Francisco Public Utilities Commission’s Assistant General Manager for Power Barbara Hale.
San Francisco’s $2.5 billion offering for the infrastructure is “the result of detailed financial analysis conducted by industry experts and encompassing an extensive examination into the company’s assets in San Francisco,” said Mayor London Breed and City Attorney Dennis Herrera in a statement.
The city is also hoping the company’s bankruptcy proceedings will provide additional incentive to accept the offer, by providing “significant cash infusion” to debtors.
“US power utilities almost universally operate under what is called cost-of-service regulation (COSR). In a nutshell, they make money by building stuff. The thinking behind COSR is pretty simple. Utilities are state-protected monopolies, so we can’t have them profiting off their main product. By law, they have to sell power to ratepayers without any markup. Yet to provide service to their customers, they need investment money to build out new substations, transformers, meters, and power lines. How can we induce private investors to put up money for public capital investments? We offer them — utility shareholders — a safe and predictable rate of return on those investments.“
PG&E’s Reaction: Since San Francisco does not have a big risk of wildfires like many other parts of California, the city’s low risk keeps costs down for other ratepayers. PG&E warns that energy prices could rise for the rest of its customers should San Francisco choose to go independent. Additionally, as KQED also noted, San Francisco is such a huge part of PG&E’s customer base that the utility might not be a viable company without it.
Why This Matters: San Francisco believes that municipalizing its utility (changing ownership of the utility from investor-owned to public) can help bring cheaper prices to customers and drive more transparency. This is a noteworthy story to watch as we move further into the 2020 election. Senator Bernie Sanders outlined in his recently-released climate plan a massive public takeover of the nation’s utility grid–this part of his plan got a lot of buzz and it will be interesting to see how this point gets discussed in down-ballot races heading into 2020.
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