When Power Goes Out, Who Is Held Accountable? (Episode 84)

And just hundreds of thousands of people have been affected from that and are likely to be essentially hung out to dry from all their losses. The reason they’ve gotten to this point is basically because they didn’t invest enough into their maintenance. They did not want to invest to trim trees, which is now, you know, trees fall on the power lines and spark these wildfires.

So unlike Chris’s experience here in St. Paul, Minnesota, in California, they are turning off electricity to hundreds of thousands of customers as a preventive measure due to wildfire risk. And there is a lot to this story in terms of, it is a utility that has already been slapped with liability from previous wildfires.

It has filed for bankruptcy. It’s actually one of the largest utilities in the country, Pacific Gas and Electric and like I said, they’ve been having these rolling blackouts to basically de-energize power lines to reduce the risk that there will be a fire caused by trees getting knocked down.

So that’s kind of one of the things here is that there’s sort of this social compact around electricity and the understanding is, I’m always going to have it. And now the utility is voluntarily choosing to shut it off, which is not usually what we expect. We expect there’s a big storm, the power goes out for a little while, but we know they’re working as hard as possible to turn it back on as quickly as possible. So part of this is in some ways a lesson in history.

So what we found, one of the problems is essentially that if you have power lines, one of your goals should be cut down the trees that live near them so they don’t fall over and hit the power line. And unfortunately, Pacific Gas and Electric and unfortunately other utilities like it have sometimes not invested as much money as they ought to in these preventive measures. So that instead of having to turn off the power grid to prevent a fire when trees are falling on power lines, you instead have cut down the trees ahead of time or prevented them from growing. And there’s some good evidence, unfortunately, that Pacific Gas and Electric has not been doing enough.

And yet customers of some of the larger utilities that were investor owned, like National Grid, were out for as long as a week. And what a lot of the, when you dig into this, this is actually a pattern that you see. If you look at national stats on reliability in terms of the average amount of minutes that you’re out of power on a given year or the number of outages, municipal utilities tend to be among the best. And there’s a lot of reasons for this but one of them is they invest really well in their maintenance budget.

So when we were talking about tree trimming before and Pacific Gas and Electric, there is a history there of skimping on their maintenance budget. So this actually goes back to 1999 when they were in trouble in front of state regulators for not investing enough. And they had to settle a case about investments that they had not been making and beef up their budget to do more tree trimming.

And again, in April, a federal judge found as part of the bankruptcy proceeding that Pacific Gas and Electric is going through, that their tree trimming budget was insufficient. And in fact, I want to read a quote from that judge that was in the paper back in April when the story came out. The federal judge said, “PG&E pumped out 4.5 billion dollars in dividends and let the tree budget wither.”

And so very clearly this tension for investor owned utilities, which are set up to help pull profits to shareholders between doing the basic maintenance that makes sure that the grid is reliable and paying their shareholders. And of course when you get to a situation like this in California where you have climate induced wildfires that are getting worse and worse, the problem is that you can no longer really escape from the fact that you have been under investing in the grid system and in doing that basic maintenance.

And is also this issue, and Chris has mentioned this a lot in podcast that he’s done, about the benefits of locally owned broadband networks is there’s no strangle effect. It is much harder to reach out and strangle somebody responsible for the problem when it’s a huge investor owned utility that serves half the state as opposed to when it’s a local municipal utility. You can show up at City Hall, find their office and be like, hey, I’m really mad about this.

And so what it comes down to is then, because we know that PG&E has that tendency and those incentives, we rely on regulators to try to stop them from doing that. To look at this sort of thing. In theory, there is a public utility commission or public service commission that’s supposed to be looking over their practices. But as you know, those people, the regulator, it gets forgotten by the public and the only ones that attention to it are the regulated.

And so they have a strong influence over that body. And this gets back to our preferred solution, which is not to just hope we’ll have better regulators, but to have systems where you will get a glare if you’re doing a bad job. Where there’s a real accountability. Where a person, you know, I think shame is something that we don’t have enough of in certainly the current political climate, but like in general at the local level, there’s repercussions if you screw the community over.

And I think that’s something that we don’t have right now. And we’ve tried to cover for that with a very flood regulator system. But fundamentally, this all goes back to something that I harp on a lot, which is when you do something wrong, is there going to be repercussions? Is it going to be visited upon you or can you externalize it to someone else? For PG&E they clearly have not believed there would be a real repercussion for them slashing those budgets.

I mean I think this is the crucial question, is what is the consequence going to be? And I think what we’ve seen in the last couple of years is, especially with this issue of wildfire risk, is PG&E the reason they are bankrupt right now is because they are actually being held accountable for the wildfires.

So there was a direct connection made between trees falling on their power lines, as the result of poor maintenance, causing the fires that caused billions of dollars in damage and as much as 80 lives in the 2018 fire season.

So this is actually one of the big questions going on right now, is how is California going to resolve this crisis in a way that’s fair for folks. And one of the ways that we’re talking about this is about the potential of shifting to public ownership. In fact, this is kind of already happening. For the last decade, hundreds of thousands of Californians have already been installing their own solar arrays.

So they’ve already said, in effect, we can get a better deal producing power for ourselves. And now they’re starting to talk about adding battery storage. In fact, that’s unfortunately one of the things that Pacific Gas and Electric is essentially saying to people is, we’re going to shut off the grid so you better have your own power system.

And the problem is that that solution by itself is not very equitable because of course only people who have lots of money can have access to that solution. The other thing that’s been happening though, really quick though, is just that we are seeing a growth in public ownership of utility systems through a policy called community choice. And so as many as half of Pacific Gas and Electrics customers are going to be served by public agencies within the next year.

And one of the arguments has been that it would be too costly to do distributed generation in part because, I think, the way that the high transmission line economics work. The costs are paid in different ways that are externalized to some of the people who really benefit. But fundamentally what we’ve come at now is a point at which PG&E is saying, “Having built all these high voltage power lines with other people’s money, well now you also need to do all the costs of decentralized generation and power storage.” Which means that we effectively are paying the price for both systems but getting the benefit of neither one, which is just really dumb.

I mean a lot of the Bay Area already is… Customers are actually going to be served by these independent community based agencies that make the power supply decisions. Now the issue is they don’t buy the grid from Pacific Gas and Electric. So we’re getting into this weird situation where all of the purchasing authority is going local and in ways that I think are really going to make smart investments in decentralized power generation, but Pacific Gas and Electric still owns the poles and wires or at least their creditors do at this point. And so one of the difficult questions is going to be how much more of that infrastructure do we build? It’s really big. And how do we maintain the stuff that we have? There are lots of people writing and talking about this and energy Twitter is all the flutter about, well what do you do about these power lines? Do you bury them at the cost of like $10 million a mile? Is it really just enough tree trimming? Would that solve the problem?

My instinct is, and what we find with other utilities in California, if we just spent more on maintenance, we might have a much smaller problem that we’re talking about right now. And there may be some other things we also need to do to make the system more resilient, but at the basic level, we just need to invest the right amount of maintenance and to acknowledge the fact that it may be more expensive than we thought to have this big centralized system because it is more vulnerable in a climate charged world than we initially expected.

But the other piece of it is San Francisco had thought about and rejected doing a utility tax. So it all comes back to that. But I do actually just want to ask you one additional question John, and that’s, once again, we’re spending a lot of time talking about California. What is happening elsewhere with community choice aggregation?

We’re seeing new growth in states that haven’t had programs before, Massachusetts, New Jersey, and so it’s spreading further first of all to more states, and even in the states that have had the policy for a while, we’re seeing more and more communities signing on to do it.

It’s typically in states where there’s already competition at the retail level. So you’re not finding a state like Minnesota where the utility is vertically integrated monopoly. It means it owns everything from the meter on your house all the way up to the power plant, do this because it would be a significant restructuring of how things work. They’re doing it in states where there was already competition where an individual already had choices, but what they found is that individuals don’t have any leverage, so they don’t really get good choices. They get options like, “Hey, sign up for this promotional pricing package for six months and we won’t tell you how much it’ll cost after that.” Which may sound familiar.

We’re not seeing that yet obviously because they don’t own the infrastructure but we are seeing them integrate the community choice of energy supply with other community level decision making. So things about zoning or permitting for clean energy resources, integrating with electric vehicles and transportation investments and thinking about how, “Hey if we offer like discounts on heat pumps for homes and we offer discounts on electric vehicles, those folks can get inexpensive clean electricity to power those vehicles from our community choice electricity service.

So that is the kind of cool thing that is happening on the edge of this policy right now that communities are really pushing forward.

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I think if you can keep it below $20 a month, it becomes much more reasonable. And in return for that, you get a basic internet connection, which may be different from community to community, but just by virtue of being in the community, you would have fiber optic access to the internet, which would be a high quality signal, but you might be limited to maybe a kind of connection that’s slower than your typical cable connection today, but would still be very good for families who could not afford anything better than that.

And that might cost on the order of $40 a month, which in addition to the utility fee would still be a very reasonable price compared to what people are paying on their cable bills today. We’re talking about a total cost to the household of maybe 55 to $60, and they would be able to take services from a variety of providers in that situation because the network would likely be open to multiple providers who would all compete on it. In the same way that those of us who have gray in our beards remember in the late ’90s when we had early DSL but also the dial up era of internet access, You had a dial up modem in your house and you could call any one of… If you were in a small town like I was, maybe two or three providers, but if you are in the twin cities, you could probably pick among 20 to 100 providers to get your dial up service from.

This approach, this utility fee approach would effectively build a common network that would allow multiple different providers to compete on it? And we haven’t seen it anywhere yet in part because I think elected officials have been afraid to propose a tax to pay for this sort of a thing, but we’ve seen more communities noodling it over. I think Kainesville and American Fork in Utah are somewhat public now about considering this approach.

And Davis has considered it in California as well as San Francisco, and they decided not to move forward with it there. But it’s something that I think is just terrific because it solves the digital divide issue in that everyone gets a basic connection.

This resolves that issue in that everyone’s contributing and everyone gets a basic connection. And so we haven’t seen this attempted in this manner, but some of the lessons it draws upon are networks that have struggled to pay their bills because the open access model has been one that has really struggled. Utopia is famous for it, which is doing really actually wonderfully now. For many years it was considered a failure. I don’t think we can consider it much of a failure anymore, although it still is being supported by some sales tax in those cities in Utah that have been a part of it. But this model is one that’s been adapting over the years.

Now CenturyLink is operating on a network which is not a utility fee model, but nonetheless is a network that’s being built by Springfield, Missouri, and will allow CenturyLink as well as other providers to connect anyone in this city of more than a hundred thousand people in Missouri. And so we’re hoping that this is the beginning of an era in which a city would be able to build an open access network and a provider like CenturyLink would compete on it. Because that would give investors greater faith to invest in that physical network and allow cities to then build it.

And I use the school example often. People who are not going to have children paying money that goes to upgrade the schools and they haven’t benefit from that. In this case, if you say, “I’m never going to use the internet.” Then in theory you’re not-

But then you also have all these other folks, sort of middle class people who probably don’t think a whole lot about it, but do get to watch their cable bill continue to rise and rise and rise, who would really benefit a lot from their being at least enough competition to eliminate the monopoly profits model and to require the Comcast and the AT&Ts and the Verizons, to actually compete with somebody else and to reduce their margins from 50% on a customer to 20%.

You are, and you’re going to pay for it by us lowering your bill. Because right now, you’re spending all this money that could finance this great network, but you’re overpaying in fact, but that money is going to Philadelphia or New York or Dallas. We’re going to keep that money in the community. Everyone’s already paying for it. We’re just going to distribute it better in ways that enable competition and the numbers actually work out that way. Now the threat is of course, that if Comcast or others wanted to try and strangle this model in the crib, they would come in and they’d start saying, “Well, we’ll offer you that Mr. Mitchell, that $95 a month you’re paying right now, we’ll cut it down to $35 a month and we’ll do that for two years.” And that’s the question for Attorneys General to answer, whether or not if that’s predatory pricing or not. But again, everyone’s benefiting in that scenario.

I think fundamentally we want competition at the physical layer. We’re not going to get a lot of it. But having two providers is a heck of a lot better than having one where that provider, even if publicly owned could get lazy in some places. We see this with municipal electrics where on the whole, they are far better than the IOUs, but there are some in which I would say they’ve kind of forgotten their mission and they need to be reminded of that and hopefully they will be reminded of that, there are mechanisms to do that. But having a facilities based competition I think would be good. And so I think there’s a role for those companies to some extent. I think AT&T where it has fiber, would compete hard and then they’d focus on their wireless more. But I think Comcast would continue to grow and exist in that area and it would be a good thing because it would provide more innovation and competitive spirit in the market.

I think that’s another key is that if you build the network like this, you really want to make sure you have a few core service providers that are going to be really good because let’s just say we built Mitchell net in Saint Paul, Minnesota and the first two providers that were on it and we’re competing, were not good. People wouldn’t say, “Well that provider A and provider B aren’t very good.” They would say, “Mitchell net sucks,” and that would hurt my feelings. So I mean it’s really important that when you launch a network like this, you are professional and that you get a good reputation right off the bat with providers because people will assume if the service provider is not good, the network is not good despite the fact that they are decoupled.