Sounds ridiculous, doesn’t it? But that’s what our current State Legislature lets PG&E charge you.
After eight years as a Palo Alto council member and Mayor, I’ve seen state officials drift away from their communities. Sacramento’s poor regulation of PG&E is a prime example of legislators who follow big donors and special interests instead. They tell voters how they’ve done great things, which in reality are tiny; and hope voters won’t notice.
Now, you may have noticed that PG&E just got State approval for a fourth rate hike this year, a year in which PG&E earnings were up 25% over the previous year (PG&E says there’s no connection) and that they paid their CEO $80 million over the last three years.
But you might not know you actually pay twice as much for electricity as your neighbors in cities with their own municipal utilities, such as Santa Clara, Sacramento, Anaheim and my own city, Palo Alto. It’s true; here are recent prices per kilowatt-hour (a unit of energy) in PG&E cities vs non-PG&E cities:
Source: Energysage.com; City of Palo Alto; lydiakou.org
Why the difference? Watts are watts, after all. But in PG&E cities, PG&E has a monopoly on “Delivery” of those watts to your home; and Sacramento, from the Governor’s office down to your local State Assemblyman, lets them use it against you.
GENERATION is Competitive, but DELIVERY is a Monopoly
Electricity providers often talk about “Generation” costs, and “Delivery” costs; your bill is the sum of those two, plus some taxes and adjustments.
In California, the market for power Generation — via hydro dams, solar farms, gas turbines etc — is actually competitive. Here in Palo Alto we buy Generated power on the open market, including long-distance transmission from the generation plants to our City, for typically 9-12 cents per kilowatt-hour (kWh) (1), which is pretty much the going rate.
Since Palo Alto’s residential retail price is about 22c/kWh, the difference, roughly 10c/kWh, is for “Delivery” – the transformers, poles, wires, staff to rush out and fix storm-downed power lines, etc, that bring the power we purchased to your home. Santa Clara is similar, though their ratepayers pay a bit less for their Delivery, since Santa Clara’s retail price is only 17c/kWh, and they buy power from mostly the same places we do (though our mix is a bit greener so our Generation costs may be slightly higher).
But if you have PG&E, you’re paying much, much more for Delivery. If your total price is 45c/kWh, and you assume PG&E pays around the same 9-12 cents/kWh for Generation as the rest of us, then you must be spending 30-35c/kWh on Delivery, which is actually THREE or FOUR times as much as city utilities. Even though we all use the same wire, we all buy the same trucks and transformers from the same suppliers, and we’re all union shops (city utilities even have government pensions, too).
So why so big a difference? PG&E and Sacramento will give you basically a blizzard of words and jargon, but the real reason is that Delivery – those wires, transformers, poles and workers – is always a local monopoly. And without regulation, a monopoly will charge you what it can get.
An Unregulated Monopoly Will Gouge You
Now, city utilities are monopolies too. But in a city utility, the Delivery operation is owned by the public and regulated by the local city council, who are elected by the city’s residents, who are also the ratepayers (and the utility’s owners, too). In other words, city-utility ratepayers directly elect their monopoly-regulators. Furthermore, city-utility ratepayers live near and often meet these “regulators” (their city council) — in Safeway, at kids’ soccer games, and at cookouts in the park. The Accountability loop is tight. I was Mayor, I guarantee you our residents know how our power prices compare to others!
But PG&E is owned by private investors and regulated – or not – by the five-member state Public Utilities Commission, which is appointed by the Governor and ratified by the State Legislature … which also passes the often-favorable laws PG&E operates under. Few people ever even see their State Assembly or Senate rep (or Governor); and nobody ever meets their actual regulators, the Public Utilities Commissioners. PG&E governance is hundreds of miles and at least two levels of government farther away from ratepayers than city utilities are; and PG&E has owners whose financial interests are the exact opposite of ratepayers’. That’s a recipe to dramatically dilute public accountability.
The real difference? If a city utility raises rates four times in one year and charges twice the going market price, the city council gets voted out of office. Whereas if PG&E gouges ratepayers, their shareholders make money, the PUC gets reappointed, and State Legislators get donations from energy companies — including PG&E themselves, in many cases (2, 3). That’s the difference. That, and 25c/kWh on your bill.
The reason you pay a 2X electricity premium to PG&E, is that local city councils actually regulate electricity monopolies, and Sacramento doesn’t.
What to Do
To be fair, regulating a monopoly usually isn’t easy. Giant private utilities like PG&E invariably have a huge list of technical and economic arguments why their current prices are the lowest possible, and how anything lower would harm the public. And if we didn’t have comparisons to municipal utilities delivering the same Watts at half PG&E’s prices, who would know for sure?
Fortunately, we do have those comparisons. So while it’s not always right to say, “Sorry, we don’t approve this rate increase,” it certainly looks right now. State legislation that lets PG&E transfer major wildfire/back-maintenance and legacy costs from shareholders to ratepayers seems pretty suspect when power on one side of Stevens Creek Boulevard costs over twice that on the other side. Infrastructure and maintenance costs were built into rates we’ve already paid all this time; it’s not ratepayers’ fault PG&E spent those dollars on “hefty executive salaries, shareholder dividends and excessive debt service” instead (4). Why is our current State Assembly ok with ratepayers having to pay twice for PG&E maintenance? (Actually more than twice, if we count the connection from PG&E-driven wildfires to our statewide insurance woes.)
In February of 2020, one State legislator introduced a bill, AB2079, that would ban privately-owned utilities (such as PG&E) from donating to California political candidates. I think that’s a sensible idea. But the bill was killed in Committee (5).
Current Sacramento legislators’ unwillingness to regulate PG&E is about political spinelessness, inattention, and just basic lack of caring. As your Assemblywoman, I will not have that problem.
Unleash Cities
There’s another, more systemic change that’s pretty much a no-brainer: unleash cities.
Big cities know PG&E is gouging their residents on Delivery, and that city utilities can provide lower costs and often better service, because as regulators they’re more directly accountable to the public.
That’s why the City of San Jose is developing its own municipal power utility to replace PG&E there (6). And why since 2019, the City of San Francisco has been trying to buy out PG&E’s local Delivery operations, valued around $3 billion (7). PG&E has fought back procedurally, politically and legally. At the moment San Francisco is threatening eminent domain, and the whole affair may be headed to court.
Our State legislature’s indifference here is a mistake. Not every city currently wants to replace PG&E with their own Delivery operation, but those cities that do should get legislative help from Sacramento. They don’t get help, but they should. Local regulation of electricity has a better track record of serving Californians than Sacramento’s hands-off on PG&E has; and it shows in black-and-white on your electricity bill.
It’s ironic that some legislators who talk the loudest about housing costs, despite achieving essentially nothing on them, completely ignore the price of energy which is also a basic need. Housing isn’t the only thing that makes the Bay Area expensive to live in.
As your Assemblywoman, I’ll regulate PG&E. And one thing I’ll work on right away is legislation to make it easier for cities that want to replace PG&E for their local Delivery to do so. San Francisco shouldn’t have to invoke eminent domain and pay millions to lawyers. If San Jose needs help, they should get it. Monopolies, especially those that provide essential public services, don’t get infinite latitude, either on pricing or on who their competitors are.
In Praise of Wonkiness
All this may seem unbearably wonky, but the fact is Sacramento ought to be wonky on this. If you’re anywhere but Santa Clara or Palo Alto or Anaheim, inadequate wonkiness is why you pay so much for electricity and get four rate hikes a year (and it’s still only October …).
But try this: go ask your various state Assembly and Senate representatives to compare PG&E’s performance to city utilities. See how many give you a blank look, or else a hand-wave soundbite from the energy industry.
Most will have no idea of even the difference between PG&E and a city utility (or a “CCA” either, see footnote), let alone Generation vs Delivery markets and what the actual numbers are. Yet you cannot hope to regulate a sophisticated energy giant like PG&E without knowing this stuff. I do know — I helped oversee an actual utility. I know malarkey when I see it, and PG&E is serving malarkey up big-time. Time for that to stop.
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