A PG&E truck is part of the response to a power outage in San Francisco in December. After the blackouts, state Sen. Scott Wiener introduced a bill to accelerate the process of creating a municipal utility in the city. 

From being on the wrong side of the wholesale power market when Enron and other companies were manipulating it during the California electricity crisis that led to bankruptcy, to an explosion of its San Bruno natural gas pipes in 2011 that killed eight people, to safety failures that started many recent deadly wildfires that resulted in a second bankruptcy, to eye-popping rate increases over the past five years that have crystallized customer anger, PG&E has had a pretty disappointing 21st century.

After a major power outage in San Francisco in December, state Sen. Scott Wiener had had enough. He introduced a bill to accelerate the process of buying out PG&E’s assets in San Francisco and creating a municipal utility. His plan: to transition the city from being part of PG&E, an investor-owned electric utility, to a nonprofit, publicly owned utility.

The U.S. economy has thrived with most goods and services produced by private, for-profit companies competing to sell their products. Almost no political leaders in the country, even those on the most progressive end of the Democratic Party, argue that we should move far from that model. So, why should electricity be any different?

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Because a competitive market is simply not an option when it comes to providing local electricity distribution services, the primary activity that the new legislation addresses. So long as electricity is delivered with physical wires that run through neighborhoods to homes and businesses, it will be most cost-effective to have one firm doing it in any area, which is called a natural monopoly. Either we have public ownership of those lines, or we have an investor-owned utility operating under regulatory oversight.

Given the well-documented failures of PG&E, many people now see government ownership as a better choice. Yet, it isn’t hard to come up with examples of government utilities that have failed their customers. The catastrophic collapse of Puerto Rico’s public electric utility after Hurricane Maria in 2017 is the most horrendous example. Nor is it hard to identify government agencies that Californians love to hate, from the state’s Department of Motor Vehicles to local planning departments that review building permits.

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Investor-owned utilities are commonly suspected of skimping on safety and reliability to boost their profits, but they are generally fine with spending on service quality so long as the regulator allows them to pass those costs through to ratepayers. Still, it takes effective regulatory oversight to make sure the expenditures are actually delivering as promised. That’s not likely to happen if regulatory staff are underpaid, overworked and frequently leaving for better jobs, as is the case at the California Public Utilities Commission.

In fact, many advocates for public ownership are also the most outspoken critics of the commission. If they think that the commission, a state agency, is such a failure, why are they so confident that a government agency running the utility will be a success?

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Investor-owned utility skeptics also point to the extra revenue needed to deliver profits to shareholders. But government utilities also face a cost of capital: the interest they pay on bonds used to finance their capital expenditures.

Indeed, the interest rates on public utility bonds are typically much lower than the average return paid to shareholders of investor-owned utilities. But why is that? One reason is the favorable tax treatment of local government bonds, which is, of course, not an efficiency, but a subsidy from the federal government.

Another reason is that the local or state government backing the bonds from a publicly owned utility is taking on risk. If the power lines of a publicly owned utility start a wildfire, the liability would be on the government entity, which would have to cover the cost to the victims and still make good on the bonds, or it would have to declare bankruptcy. With an investor-owned utility, shareholders are the first to lose their investment.

It’s not a coincidence that San Francisco — a city where power lines pose little wildfire risk — is one of the most aggressive proponents of turning its part of PG&E territory into a public entity. Carving off the low-fire-risk areas would end the current cross-subsidy of the more wooded and rural — and, on average, poorer — parts of its service territory.  That might seem more fair, but are we ready to follow that cover-your-own-costs precedent when climate change wipes out coastal highways or threatens distant reservoirs that supply water to major cities?

And, by the way, San Francisco gets nearly all of its electricity from other parts of the state. How do you think that power gets to the city?

Guest opinions in Open Forum and Insight are produced by writers with expertise, personal experience or original insights on a subject of interest to our readers. Their views do not necessarily reflect the opinion of The Chronicle editorial board, which is committed to providing a diversity of ideas to our readership.

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None of this is an argument that public power would necessarily be worse (or better) than an investor-owned utility. Some studies have suggested that public utilities have lower retail prices, though it is difficult to know how much of that gap is due to differences in service territories, tax advantages, access to cheap federal hydropower or historical accident.

Converting all or part of PG&E into a public utility would not be a fast track to a safer and more efficient electricity distribution provider, though it might be the beginning of a long road to reinvent the utility.

Severin Borenstein is faculty director of the Energy Institute at UC Berkeley’s Haas School of Business and a member of the board of governors of the California Independent System Operator.

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