PG&E: The Revolving Door & Climbing Rates

One of the biggest stories of the last 5+ years has been the power outages, blackouts, wildfires, and the San Bruno gas explosion that have plagued Northern California and PG&E.  Here in B'game, we have had outage issues over the years that lead to the founding of Burlingamers Unwilling to Live with Blackouts (BULB) that appeared to get PG&E to do some equipment upgrades that improved uptime.  We have been lucky in not having any wildfires, but anything can happen--there is plenty of fuel in Mills Canyon and throughout our City of Trees and in our up-the-hill neighbor H'borough.  Keep your fingers crossed.

The Wall Street Journal published a three and a half full page investigative piece on PG&E on December 28th.  If you have access and missed it, go back and read it.  Otherwise I will be taking a few excerpts from it to illustrate not only the PG&E failings, but those of the CPUC and Gov. Brown and Newsom.  There is plenty of blame to go around.  This first installment starts with the revolving door at the top.  It's never easy to turnaround a huge operation like PG&E and heavily regulated utilities are even harder than a regular large company.  It takes strong leadership, methodological and patient strategy and execution and good relations with the regulator and investors.  Stability helps too and we have not had that in the CEO's office.

The Journal article starts with Peter Darbee taking over from 35-year veteran Gordon Smith in 2005.  Known as the "Green CEO" who arrived with a plan for "business transformation" using Accenture as a major consultant and a mission to move towards more green power, Darbee fell far short on the earnings front and resigned in the wake of the San Bruno explosion.  There was an interim CEO, Lee Cox, until Tony Earley was hired from DTE Energy in Detoit on a "back to basics" theme.  Infrastructure investment went up

PG&E traditionally had spent $5 to maintain its far bigger electrical transmission and distribution system for every dollar it spent maintaining its gas network each year. The furor over the San Bruno explosion skewed spending toward gas.

In 2011, the company spent $237.8 million to maintain its gas network, more than twice the amount in 2010, according to federal filings. That spending kept rising, hitting $658.3 million in 2016, when it topped the spending on electric upkeep by $60 million.

Then came the power failure at Candlestick during Monday Night Football.  Earnings suffered for a number of reasons and Early was gone in 2011 and

In his final year, PG&E’s average cost of electricity for residential customers had risen an inflation-adjusted 10% to 20 cents per kilowatt hour, among the most expensive of any large utility in the country.  Mr. Earley, who had touted his practical-minded, back-to-basics approach, returned to Detroit, never having tamed PG&E.

“We are coming back to Michigan when this adventure is over,” he had promised the Detroit Economic Club two years earlier. “One of the reasons is someone once summed up San Francisco absolutely perfectly. They described the city as 49 square miles surrounded by reality.”

The next CEO, Geisha Williams, had been the PR face of PG&E during the San Bruno aftermath and was elevated to CEO with an emphasis on "affordability" of rates.  Then the major fires started and continued

While its service area burned, PG&E’s residential electricity rates averaged 21 cents a kilowatt hour in 2017, rising to 22 cents the next year. Only New York’s Consolidated Edison and San Diego Gas & Electric charged more among the nation’s largest utilities.

She lasted 14 months, followed by another interim CEO, John Simon, until another industry vet, Bill Johnson, was brought in from Tennessee Valley Authority (TVA) in April of last year.  In addition to all of the operational issues, Johnson has competing bankruptcy plans to shepherd, an ever climbing green energy mandate to satisfy and hundreds of wildfire and blackout-related claims to work through.  That is a lot of change - people and strategy - at the top for any organization to digest while keeping the lights on.

Comments

[Paloma Ave]

I agree that PG&E has been massively mismanaged since since Gordon Smith.

The rates charged seem criminal.

PG&E tried downsizing, then right sizing, then spent close to $1 billion on Accenture. All of which were massive failures.

They took a poorly run company (but somehow functioning) and broke it.

I suggest banning the board of directors from reading books that they think will fix PG&E and talk to the front-line workers.

BTW, Peter Darbee was given a $35 million severance package. Why are failures being paid to go away?

[Bruce Dickinson]

Folks, sometimes it takes a captain of industry, such as yours truly, Bruce Dickinson, to really shed light on the blame-game, especially when it comes to easy targets such as the "Big Bad Corporations." Guys, PG&E has made some poor decisions, but let's face it, they've been operating with one hand tied behind their back due to a major hurdle:

California's asinine regulatory and legal regime.

Let's go back to the de-regulation of wholesale power in the 1990s, which led to the power crisis of 2000-2001, resulting in the bankruptcy of PG&E and near bankruptcy of Southern California Edison and San Diego Gas & Electric. California's brilliant legislature and Public Utilities Commission allowed for de-regulation of wholesale power, but the geniuses kept retail rates capped. Thus when power shortages happened (supply and demand, weather, and also do to market manipulators such as Enron who saw the obvious weakness in the regulations as exploitation tools), all the utilities could do nothing in terms of raising rates to recoup the cost of power. Had they had this ability, this would have quickly re-balanced the market and allowed the legislature and PUC to draw up some rules that actually made sense (competition should LOWER rates) rather than force the utilities to buy extremely expensive power that was sure to bankrupt them.

Now once a company files for bankruptcy, how much money do you think it has to invest in its gas infrastructure, when retail rates are capped? PG&E and other CA utilities had some very difficult decisions to make in terms of where to allocate capital and bottom line is they didn't have enough money to do it all.

Now for the wildfire fiasco, and the reason why CA utilities seem to be the only utilities in the world that go into repeated bankruptcy: the concept of inverse condemnation. Inverse condemnation is a quirk in CA law (CA is the only State that has this genius feature that has been applied differently by the Courts vs other States), that holds utilities responsible for all potential wildfire damages from their equipment REGARDLESS of whether the companies acted with negligence.

It would make perfect sense for mismanaged, smaller companies to be taken over by larger, more financially solvent companies who have the balance sheets and resources to invest in infrastructure. Many utilities across the country have consolidated. But guess why nobody is interested in acquiring PG&E, Edison, or San Diego Gas? That's right, because they're all in California and therefore subject to potential inverse condemnation! What company in their right mind would want to own a utility that cannot raise rates for needed infrastructure and that had potentially unlimited liability in a wildfire disaster even if it acted in good faith, maintained equipment, etc, but still had to pay for an Act of God!!!???!?

Folks, what you are witnessing is the effects of a super-majority government and legislature that is nothing but an echo chamber, and stifling out any sort of creative or divergent thinking. It makes me laugh when Gavin Newsom, a successful businessman in his own right, seems to have lost all perspectives of business sense as the lure of governmental power has gone to his head...either it has clouded his thinking or he has greater aspirations beyond California and he doesn't want to do anything controversial...so best to take the easy route: Blame PG&E!

THIS is why so many businesses are leaving California.

It's really not PG&E the only one at fault. WE are responsible for this problem and WE own this!!

[Joe]

Well, BruceD, thanks for jumping ahead. I was planning to milk this for two or three additional posts. I'll still do it, I just have to work a little harder on it since you stole-my-line.

[Joe]

I will double back to more on PG&E later, but this came in today as the CA legislature opens its session:

EFFECTIVE COMMUNICATION
Lawmakers held a joint oversight hearing on Wednesday to hear how communication services failed during PG&E’s power outages last fall.

A slew of reps from emergency agencies raised frustration with not only the mass power outages, but their inability to communicate emergency messages to the Californians who also didn’t have cell phone or cable service.

Mark Ghilarducci, director of the Office of Emergency Services, said that “hundreds” of cell sites and data lines lost power during the October and November fires, creating what he called a “worst case scenario” for emergency responders.

“Many Californians were unable to communicate, get information about evacuation routes or other alerts, or receive updates on (power shutoffs) or fire conditions,” Ghilarducci said. “And 9-11 centers and hospital centers weren’t able to process critical data or leverage important records.”

Ghilarducci called for telecom companies to create better data sharing tools and harden their infrastructure, what he called a needed “public safety grid.”

Meanwhile — Three Democratic Senators — Mike McGuire of Healdsburg, Steve Glazer of Orinda and Henry Stern of Canoka Park — announced a trio of bills to mitigate the emergency communication failures.
• Senate Bill 801, which would require electrical companies to help customers on a medical baseline allowance get backup power sources.
• Senate Bill 802. which would help hospitals keep their lights on by allowing them to use diesel generators as backup power sources. (Ed: Is there a law that says they can't? If so, who passed that??)
• Senate Bill 431, which would require telecommunications companies to have at least three days of backup power during outages in fire-prone areas. (Ed: That is a LOT of diesel fuel sitting in tanks in fire-prone areas).

“Our phones have become our lifeline,” McGuire said. “(SB 431) isn’t about checking your Facebook status. This bill is about life and death.”

CTIA, an organization representing wireless companies, said that while it’s committed to ensuring that “wireless is there” when needed, the issue cannot be solved by SB 431’s “one-size-fits-all approach.”
The organization continued in an emailed statement that it will continue to “invest significantly to strengthen and harden networks”

“Networks are designed with dense, overlapping cell sites and backup solutions are employed on most wireless facilities to provide continuity of service when individual sites are inoperable,” the statement continued. “Last year’s wildfires and de-energization posed an unprecedented emergency in California, and wireless networks performed well despite the challenges. We are committed to continue working together with stakeholders and public safety officials to ensure Californians can stay connected when it matters most.”

[Joe]

Add another $830 million to the ratepayers' bills:

Responding to the controversial deliberate blackouts that left hundreds of thousands of Californians in the dark last fall, state regulators have approved $830 million worth of incentives to help residents and small businesses buy advanced batteries and other energy storage technologies to keep the lights on.

The incentive program, approved Thursday by the Public Utilities Commission, will be funded by ratepayers of PG&E Corp. and the state’s other investor-owned utilities.

https://www.sacbee.com/news/business/article239403298.html

[PGE]

All because California is the most anti-business state in the union. You guys are getting what you deserve.

[Joe]

Today's WSJ is reporting on another turn of the revolving door although not unexpected:

PG&E Corp. ’s chief executive will step down following a tumultuous year overseeing the utility’s attempts to improve safety and emerge from bankruptcy after its power lines sparked California wildfires that destroyed thousands of homes and killed more than 100 people.

Bill Johnson, who was appointed last April to help steer the company out of chapter 11, has decided to retire June 30, the company said Wednesday, adding that it appointed William “Bill” Smith, who joined the board in October, as interim CEO.

“I joined PG&E to help get the company out of bankruptcy and stabilize operations. By the end of June, I expect that both of these goals will have been met,” Mr. Johnson said.
----------------
He's 66 so this is not surprising.

[Joe]

With everything going on regarding our electric service leadership is critical so here is the latest CEO hire:

PG&E Corp. on Wednesday named Patti Poppe, a crisis-tested Midwest utility executive, as the San Francisco energy company’s next CEO starting Jan. 4.

Poppe, 52, currently serves as the CEO of Michigan’s largest electricity and gas provider, Consumers Energy Co., and its parent, CMS Energy Corp. She’ll be only the second woman to run PG&E, the dominant utility in Northern California and the largest shareholder-owned energy company in the state.

Mark Toney, executive director of the Utility Reform Network consumer group, said Poppe’s five-year contract was “a more positive sign,” but he was still anxious to see how long she ends up serving in the role.

“PG&E has a lot of work to do. It needs strong leadership that’s (going to) stick around,” Toney said. “It’s not the resume that makes the difference. It’s the leadership and sticking around.”

PG&E is also searching for a new chief financial officer and a replacement for the former second-ranking executive, Andy Vesey, who stepped down as CEO of the PG&E utility subsidiary this year. Poppe will have a say in the final choices for both positions, according to company officials.

https://www.sfchronicle.com/business/article/PG-E-names-new-CEO-15736251.php

[Paloma Ave]

Her base annual salary will be $1.35 million. She will also receive a one-time $6.6 million cash bonus intended to replace compensation she is forgoing in Michigan and to help with her relocation to the Bay Area, according to a PG&E filing with the Securities and Exchange Commission.

Additionally, Poppe will be eligible for a long-term performance bonus next year valued at $9.25 million, and she will receive 2.9 million restricted stock units that will vest in 2022 and 2023, PG&E said.