Part I: A history of flawed energy investments

Power and profit: How PG&E fails California ratepayers, and what to do about it

EWG presents this exclusive four-part series on Pacific Gas & Electric, or PG&E, the largest utility company in California, with a history of mismanagement and putting profits over consumers. The series shows how PG&E is the poster child for the financial, environmental and policy flaws in energy monopolies, and is a call for for a cheaper, more equitable energy future.

Californians are familiar with the monthly ritual of being subject to high energy bills from Pacific Gas & Electric, which boost the company’s bottom line even as it fights clean energy like solar, mismanages power lines that spark wildfires, prioritizes profits and ignores the climate crisis. It does so thanks to outsize influence with state policymakers.

As far back as 2019, Gov. Gavin Newsom recognized the problem, slamming PG&E’s “mismanagement” and “greed” and vowing to haul the utility into the 21st century. But Californians are stuck forking over more than their fair share for escalating power bills.

It doesn’t have to be this way. We need to see ambitious leadership and aggressive action to right the wrongs of PG&E’s past. And though EWG might not have all the answers, we can at least offer a blueprint that learns from the past to create a fair future.

Decentralizing the power grid and overhauling how PG&E, the state’s largest investor-owned utility, operates could achieve multiple benefits. Compared to PG&E’s business model, a different model would slash energy bills for ratepayers and save billions of dollars needed for grid infrastructure. It would be a major step in fighting the climate emergency, while finally prioritizing clean and reliable energy for all Californians, regardless of where they live.

EWG has developed an alternative utility business model that would rebalance the financial risk in the current system. The risk would shift to the company instead of unfairly burdening customers, who currently pay for the mistakes PG&E repeatedly makes.

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Centralized power hurts California ratepayers

Founded in 1905, today PG&E provides electric services and natural gas to 16 million people throughout central and northern California. Those ratepayers are trapped with high energy bills under a flawed business model that benefits from woefully lax regulation. California must act to change the rules and force the utility to prioritize ratepayer benefits, not profits.

Most of the electric grid transmission investments PG&E makes are unregulated, so the utility can plunge billions of dollars into unnecessary projects. From 2010 to 2019, according to the California Public Utilities Commission, or CPUC, nearly 70 percent, or more than $6 billion, of PG&E’s transmission projects were “self-approved”1 without state oversight. For 2020 to 2021, the CPUC’s May 2021 report estimated PG&E’s self-approved projects would make up more than 80 percent of company’s total transmission investments.  

Although many of the projects do nothing to advance clean energy or cut bills for ratepayers, they do boost PG&E’s and its cohorts’ profits. The total transmission investment of $2.75 billion for the big electric utilities – PG&E, Southern California Edison and San Diego Gas and Electric – in 2020 equates to nearly $10 billion on ratepayer bills over the lifetime of the investment in cost recovery for the capital investment, profit, and operating and maintenance, CPUC says.2

Transmission assets in the state are likely severely overbuilt. A 2019 analysis by Jalah Firooz, senior principal consultant for Advance Energy Solutions, finds that since 2019 the rate of growth in the California transmission system has been “alarming.”3 Although electricity use and peak electricity demand have remained essentially flat, transmission investments more than tripled the rate of growth for renewable power and growth in electricity usage in the state.

Since 2016, PG&E’s sunk transmission costs have soared almost 45 percent, operating maintenance costs have rocketed by almost 120 percent, and administration and general expenses rose more than 50 percent, CPUC says. Many costs are associated with the fallout from wildfires, including those the utility caused, such as the deadly 2018 Camp Fire that led to the company’s pleading guilty to 84 counts of manslaughter.

Not only are transmission investments out of control, according to energy analysts, there is also very little oversight and transparency with respect to how California’s regional transmission organization, California Independent System Operator, or CAISO, operates.4

The lack of accountability for CAISO, which oversees wholesale market transactions, is likely also driving up costs for ratepayers. For instance, it appears Enron-style market manipulation, similar to the 2000-2001 California energy crisis, played a role in electricity price-spikes during the August 2020 blackouts. Key power plants were mysteriously offline for maintenance, which utilities generally always conduct in the fall and spring when electric demand is low, and others suddenly went offline during peak electric demand triggering the blackouts. Moreover, aCAISO software glitch allowed thousands of megawatts of power to be exported from the state during critical peak times. During the western heat wave, California was the only western state to have blackouts that summer.5

We need to see ambitious leadership and aggressive action to right the wrongs of PG&E’s past.

Ratepayers are also charged for the CAISO-overseen transmission system with a Transmission Access Charge that diminishes the value of their rooftop solar investments.6  

The waste of money isn’t limited to transmission, because some of PG&E’s investments in power distribution systems also lack regulatory oversight. PG&E’s distribution system costs rose nearly $3.5 billion from 2018 to 2020, says utility expert Bill Powers. But according to a CPUC filing from the California Agricultural Energy Consumers Association and the California Farm Bureau Association, the utility’s sales fell 5 percent from 2010 to 2018. 

Evidence of bad investments

PG&E ignores evidence of the benefits from investing in solar and other clean power. A report by Vibrant Clean Energy says a state policy to prioritize a decentralized grid dominated by solar and battery storage would save $120 billion by 2050, compared to a system dominated by centralized large utility-scale wind and solar farms, which PG&E prefers.8 And customers would pay almost $30 billion less in utility bills in cumulative savings under a primarily decentralized clean power system complemented by utility-scale wind and solar investments.

The California Independent System Operator, or CAISO, that runs the state’s transmission system and state utility regulators has long recognized the benefits of distributed solar and energy efficiency, another critically important distributed energy resource. This contradicts the state’s lenient attitude towards PG&E’s excessive buildout of centralized power transmission.

In 2018, CAISO recommended saving $2.6 billion in future costs by canceling 18 transmission projects by PG&E and SDG&E and revising 21 others. CAISO found “[t]he changes were mainly due to changes in local area load forecasts, and strongly influenced by energy efficiency programs and increasing levels of residential, rooftop solar generation.”8

Demand for power does not justify the extensive transmission projects on which PG&E is blowing its funds. In March, CAISO said demand “remains relatively flat, resulting in part from continued statewide emphasis on energy efficiency and behind-the-meter (as in rooftop solar) generation. . . . As a result, transmission expansion needs remain relatively modest.”9

PG&E’s lavish spending ignores new state laws and mandates for expanding clean power, including for incorporating more solar into new homes and commercial buildings. The utility should be prioritizing expenditures on advancing clean energy to help satisfy these mandates.

2019 protest in front of PG&E headquarters in San Francisco

2019 protest in front of PG&E headquarters in San Francisco

Photo: Sheila Fitzgerald via Shutterstock

Potential for more bad decisions

In May, the CPUC staff proposed that efficiency upgrades or additional capacity should be considered at existing natural gas facilities to avoid future blackouts in the state.10

PG&E suggests non-fossil-fuel resources should be considered first and that more gas capacity should be “optional”11 but is still open to the CPUC’s idea, despite recognizing it could be more expensive. “PG&E believes that natural gas capacity upgrades provide a reasonable ‘least regrets’ insurance policy to maintaining system reliability,” the company has said.12

Advocates like the Natural Resources Defense Council and Union of Concerned Scientists13 and Sierra Club and California Environmental Justice Alliance14 point to critical flaws in the staff’s assessment, emphasizing that another California state agency, the California Energy Commission, or CEC, found that no reliability issues were at hand near- or longer-term. Indeed, CEC found that the more natural gas added, the less reliable the electric system would become and that clean energy resources were in the pipeline to allay reliability concerns.

San Bruno, Calif., mayor consoles resident following 2011 PG&E natural gas pipeline explosion

San Bruno, Calif. mayor consoles resident following 2011 PG&E natural gas pipeline explosion

Photo: Associated Press

Profiting from problems

Despite the company’s negligence that resulted in the largest fires in California history, multiple deaths, and bankruptcy, PG&E turns its problems into moneymakers. It spends excessively on traditional, high-cost, centralized, monopoly utility business model in California.

In 2020, the company spent nearly $5 billion on wildfire mitigation and plans on $10 billion this and next year combined, to be recovered from ratepayers.15 Up to 85 percent of the cost is for grid hardening, which includes replacing and protecting components on distribution power lines from fires, and vegetation management. The plan has been approved by California’s Office of Energy Infrastructure Safety and now is before the CPUC for ratification.16   

PG&E is proposing a further $5 billion in operations and capital expenditures directly or indirectly related to shoring up its distribution system against fires.17 It projects capital expenditures for distribution system operations will be in the $4 billion range through 2026.18  

The utility also plans to bury 10,000 miles of power lines at an estimated  cost of more than $25 billion in fire-prone areas,19 which would be recoverable from ratepayers. But critics have estimated the cost could be $40 billion or more.20  

Utility expert Powers has said much of the potential $40 billion in future transmission and distribution system hardening costs could be avoided with decentralized rooftop and community solar, battery storage and energy efficiency investments.21

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Spending billions on the wrong priorities

PG&E is doubling down on the centralized utility business model and is mounting an assault on the state’s popular solar power net metering program that could severely limit the potential to expand rooftop renewables.22 The company says “remote” microgrids, which are disconnected from the larger utility system and mostly use solar and energy storage, could benefit customers in remote areas – but its plans to invest in microgrids are limited at best.23  

PG&E says it will pilot and potentially expand remote grids to the end of distribution lines for some “hard to reach” customers with low electricity demand.24 It says the idea could have financial benefit for remote grid customers, and for all ratepayers, because it will reduce fire mitigation costs by eliminating longer power lines more susceptible to wildfire damage.25  

PG&E falsely claims the concept is unproven and that it will gauge broader deployment based on whether the systems are “cost-effective and/or resilient relative to current distribution system options,” such as vegetation removal and burying power lines.26

But California has already recognized that distributed solar plus storage saves billions in avoided transmission and distribution system upgrades. The CPUC recently adopted rules to facilitate deployment of microgrids mandated by state law,27 which stemmed in part from power shutoffs, either during wildfires or to prevent them, according to GreenTechMedia.28 

Compared to PG&E’s remote grid concept, expansion of virtual power plants in California and elsewhere is a more promising way to reap multiple benefits. PG&E says it still needs to prove the benefits for customers from the remote grid, but virtual power plants already show a similar system works. Virtual power plants aggregate thousands of dispersed, decentralized rooftop and community solar and storage facilities and operate them as a single power plant with a web-based control system. Their benefits echo those PG&E claims for remote grids:

  • The capacity to keep homes and businesses powered during fires
  • Enhancing electric system resiliency
  • Financial benefits to all customers
  • Deferred expensive local distribution system upgrades.29

PG&E is limiting its definition of priority distributed energy resources to remote customers while, more broadly, also working to suppress customer-owned distributed solar plus storage deployment to protect its business model and profit margins. 

What’s a better way to keep homes and business powered even during wildfires, enhance the resiliency of the electric system, financially benefit all customers, and massively cut costs?

The answer is decentralized clean energy, not PG&E’s plans for California’s energy future.