Changing a utility’s owner won’t put out the fire

It’s devastating to watch parts of California burn — and adding insult to injury, the state’s residents and businesses are suffering through forced blackouts. Now, elected leaders in the Golden State are desperate to find a permanent fix.

One idea being considered by some California cities is municipalization. This means the city would buy the utility — or parts of it — and the city government would operate the utility. San Francisco, San Jose, and others are considering this drastic move.

It is wholly understandable that communities and leaders across the state are frustrated by the blackouts — any American would be — but municipalization will not solve the fire crisis. Further, it will introduce other complications and expenses during an emergency. My organization recently released an in-depth study of the outcomes from new efforts to municipalize and, simply put, municipalizing does not bring lower costs, increased reliability, better energy choices, or more renewable energy.

The study also found that there is a false equivalency to legacy municipal utilities. Cities that already are municipalized tend to work well, but newly municipalized utilities can’t achieve the same benefits of legacy municipal utilities.

Of the 60 municipalization efforts over the past 19 years, only nine succeeded in buying their utility. Of those nine, two gave up the utility and sold it back to the original investor-owned utility. What goes wrong is three-fold. 

First, costs tend to be higher for new municipals because the utility is expensive to purchase, and the city-based utility has comparatively fewer customers. This means the cost of running the utility is shared by a smaller number of ratepayers. Second, the process of municipalization is long, about ten years on average, and the initial acquisition budget quickly balloons above initial estimates. Third, because the process extends beyond typical political terms, the enthusiasm wanes as new leaders take the helm of their predecessors’ projects.

Cities considering municipalization will not just be buying the utility’s assets but also the utility’s debts and liabilities from the fire damages to date. Larger, investor-owned utilities have better access to capital than any city would, and therefore will be able to more cost-effectively make the investments needed to harden the grid in order to make it more resilient against strong winds and wildfires.

Municipalization also creates a serious equity issue. Cities tend to have the wealthier ratepayers and if they peel off the grid, then who is left behind? Rural and poorer residents living in the wildfire zones will no doubt face higher costs and more risk. To deal with the costs of wildfires in a fair and equitable way, California needs to stick together, not pull apart.

The investor-owned utilities, like PG&E, are not popular right now, but one thing to consider is that they are at least subject to oversight by the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC), while utilities owned by municipalities are exempt from this oversight. The CPUC, in particular, is the regulator charged with enforcing the Wildfire Prevention Plans and standardizing the preventative blackouts in the state to ensure customer safety.

There clearly will be lessons learned from these recent severe wind storms and the resulting wildfires, and the CPUC will only be able to compel the investor-owned utilities, not the municipally-owned utilities, to adopt the lessons.

Given the impacts of a changing climate, specifically dry conditions and the increased frequency of historic wind events in California, the truth is that utilities are going to have to put public safety ahead of short-term grid reliability. Until power lines are immune from high wind, flying debris, and fire, blackouts are going to happen regardless of whether cities or investors own the power company.

Perhaps most telling, are the recent comments from former Gov. Jerry Brown about the risks of municipalization. He warned that the costs of hardening the electric grid to be more fire resistant would be steep, which means higher taxes and “politicians are very sensitive to that.” In other words, he doesn’t think the same elected leaders calling for municipalization would have the political will to dramatically raise taxes to protect their constituents from fire dangers.

Brown continued: “It’s complex… you have to look at it from a non-ideological point; anybody who is rushing to take over the power business may not understand the full difficulty of what the ‘new normal’ actually is.”

The grid is connected and interconnected in complicated ways, and changing ownership doesn’t change where the power plants are or how electrons move across lines. The recent Getty fire plaguing West LA was started by lines owned by the Los Angeles Department of Water and Power (LADWP), so even city-owned utilities are not immune to the wildfire threat in California.

There are many solutions for California’s fire crisis being discussed, and many will be effective, including massive grid hardening, strategic line burying, more distributed generation, land management improvements, better fire safety protocols, ramped up fire response initiatives, and improved housing and zoning measures. These strategies will take time and the investments will be expensive, but they will be much more impactful to reduce wildfires and blackouts than municipalization.

Casey DeMoss is the co-founder of Americans for Common Sense Energy Policies, a former executive director of the Alliance for Affordable Energy and is authoring a book on our nation’s energy needs. She lives in New Orleans, La. Follow her on Twitter @Casey_DeMoss