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Californians In The Dark

PG&E (a major California utility) logo on a grate.
photo by Paul Sableman

A lot of people enter government work because they like to run things. So what is the very least we should expect of those people when we give them the power and responsibility they crave?

Here’s a thought: Keep the lights on. Do that, and we can talk about everything else. If you can’t do that, well, you should find another line of work, and we should find someone else to run things.

This thought has seemingly occurred to public officials in California, where something like 2 million people (no one has evidently bothered to get an exact count) had their power deliberately turned off – in some cases for days – because their twice-bankrupted electric utility wanted to avoid the possibility that its under-maintained transmission grid could spark a rash of destructive wildfires, as it did in 2017 and 2018. As the lights came back on this week, California’s public officials began their latest round of chest-thumping. They brayed about the failings of the power company, Pacific Gas & Electric Co. And they brayed about how the company’s shareholders, rather than ratepayers, should bear the costs of compensating customers for their losses and inconvenience.

Not to defend the management of PG&E, but all this noise served (hardly by accident) to distract attention from the ongoing foolishness of state government policies. These policies not only helped bring about the recent power cuts, but also guarantee that they will happen again and again, most likely spreading to other parts of the state beyond PG&E’s service area.

While 2 million Californians know firsthand what those policies will bring, an even larger number are still wedded to the idea California’s power should be “carbon free” at whatever economic cost that might entail, with some sort of magical beings – shareholders or corporations or fairies sprinkling gold dust – picking up the tab. They are wedded to that idea even if it means running transmission lines (new construction of which is widely opposed) through forests and wildlands that dry out in California’s summer-long rainless seasons and periodic droughts. They are wedded to the idea even though these forests and wildlands release vast amounts of carbon when they catch fire from under-maintained or wind-damaged transmission lines carrying allegedly carbon-free power to the cities where people need it.

The idea that PG&E shareholders are somehow in a position to bear the costs of the recent power cut is as ludicrous as it is politically useful. The company is already making its second trip through bankruptcy court in 20 years. This is because state law has put $30 billion of expected liability on its balance sheet as a result of the enormously destructive fires of recent years, notably the devastating Camp Fire in 2018 that destroyed the town of Paradise and killed at least 85 people. PG&E shareholders already have virtually no remaining equity in the company. Now state officials are pretending that whoever ends up owning the company after its reorganization will somehow bear the cost of a blackout that was ordered – before they even owned the company – to prevent a repeat of that sort of tragedy. It’s nonsense. Whatever compensation checks someone eventually writes may come from an account with the utility’s name on it. But the only source of funds to cover those checks will be customers, no matter how that money is laundered through regulatory accounting games.

It would be highly useful for California’s public officials, and the public they are supposed to serve, to look at some cold, hard realities. They can decide how they want to address those realities as adults if they expect the minimal degree of service in the 21st century. That would be keeping the lights on without having to resort to candles, as if it were still the Gold Rush days. The Wall Street Journal’s editorial board noted that the latest blackouts sent Californians scrambling for gasoline-powered generators, and even oil lamps.

One of the realities California must face is that the state’s mandate to move to carbon-free renewable energy sources (not nuclear, and not new hydropower development) has already imposed some $2 billion in annual costs on PG&E in the form of above-market-rate contracts for solar and wind power. In some cases, the contracts are three or five times above today’s market rate. Despite the fact that these power sources have now become much cheaper, the companies that hold the existing contracts want them enforced after PG&E emerges from bankruptcy. They have valid arguments, in that these companies rushed out to invest in those power sources to help PG&E meet its first deadlines of 20% renewables by 2017 and 33% by 2020. (It achieved the latter benchmark three years early.) But this haste was their business decision, and PG&E’s. Now every excess dollar PG&E spends on power that it could buy more cheaply elsewhere is a dollar that the utility can’t spend improving its power grid to make future power cuts less imperative.

Another reality is that the state’s own renewable-power mandate is a guarantee of future problems in much of California, very similar to PG&E’s today. Cities like Los Angeles and San Diego sit in coastal basins that often have low clouds and light winds. Solar and wind energy to meet their population’s needs has to come from faraway mountains and deserts. This means crossing brushlands and forests (especially in the Sierra Nevada) that are prone to fire. This is particularly true in the autumn, when the first cool air masses of the season settle into the Great Basin around Utah and Nevada, and then spill westward down the mountains and through the canyons. These air masses get warm as they descend, and they can come howling out of the desert at near-hurricane force, all the way down to the Pacific Ocean. This is how even the smallest spark can quickly blow into a conflagration. Some 100,000 people had to be evacuated in the northern suburbs of Los Angeles just last week when these conditions sparked a fire.

PG&E has chosen to make voluntary power cuts to avoid such calamitous fires. Future improvements to the grid – which will take years, if not decades, given financial constraints – might make the power cuts briefer and more localized. These improvements can’t prevent the cuts in any reasonable time horizon, though. Other utilities serving more southern parts of the state will face the same choices.

Many power experts would say that the way to cope with this is to create a portfolio of power-generating choices, so a company could swap in something else when power from a remote solar plant, for example, has to be cut. The most logical backup sources would be turbines powered by natural gas located near the big population centers. Such turbines are comparatively quick and cheap to install; can ramp up quickly when needed; burn a relatively clean, low-carbon and abundant fuel source; and can fit in urban locales that avoid the need for long-distance transmission through fire-prone wildlands.

Oh, but they are not “carbon free.” Thus, California law already demands utilities move away from this power source, not toward it. Such generation would be entirely banned in the state by 2045.

These policies are not the fault of PG&E and other utilities. They are the fault of state officials, responding to pressure from a public that has been whipped into a frenzy (with help from a green-energy industry PR machine) over California’s immaterial contribution to global carbon emissions. This public now wants to send a signal of climate change virtue regardless of the cost – at least until that cost comes home, when the lights go out and the food in the fridge goes bad.

California does not have a national monopoly on bad power policies; far from it. Development is already hamstrung in some New York City suburbs due to a shortage of natural gas supply, in a state that has significant gas reserves that Gov. Andrew Cuomo refuses to allow its residents to tap. Nationally, the United States compares poorly with other developed countries in the reliability of our electric service. At least there is some balance in the form of, on average, lower costs.

Even in my home state of Florida, where we enjoy relatively low power rates and have a robust infrastructure that recovers rapidly from hurricanes, there is a ballot initiative under consideration in the courts that would force the state’s four big utilities to get out of the business of supplying power. This move is meant to create space for a collection of private competitors to sell power to people like me instead. New York has such a system; when I lived there, I paid as much for Con Edison to merely carry the power to my home as I paid for the power plus its delivery in Florida.

It ain’t broke in Florida, but these self-serving promoters of “competition” want to convince Floridians to fix it anyway. I certainly intend to vote against this initiative if it makes it onto the 2020 ballot.

We think of power cuts in places like Caracas and Lagos as failures of government policy. That is exactly what they are, regardless of whether power delivery is nominally in public or private hands. It isn’t any different in California. All this political breast-beating should be taken for the distraction that it is meant to be.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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