California as a Manager of Public Utilities: Debunking the Myth of State Efficiency

Many advocate for the state of California to manage its public utilities, citing the potential for increased transparency and accountability. However, this assertion is far from straightforward. The history of utility deregulation in California, along with the current regulatory and supply challenges, raises serious doubts about the state's competence in managing these utilities.

The Deregulation Conundrum

Over the past several decades, California has undergone significant deregulation in its utilities industry. This process, while intended to foster competition and innovation, has often backfired. The state government played a damaging role in this deregulation, leading to current complications. The Public Utilities Commission (CPUC) now has a pivotal role in overseeing utility rate hikes, a process that is transparent but rife with challenges.

For instance, Pacific Gas and Electric (PGE) cannot unilaterally raise prices. Instead, PGE must submit detailed rate hike proposals to the CPUC for approval. These proposals are subsequently subjected to public scrutiny, with the CPUC taking public consumer input into account during the approval process. It is noteworthy that in 2023, the PGE rate hikes were ultimately implemented with the legal approval of the CPUC. This stringent oversight process is a testament to the state's commitment to regulatory control.

Supply and Infrastructure Challenges

Supply-side concerns in California further complicate the discussion. Currently, the state relies heavily on imported natural gas, with over 90% of its gas supply coming from Canada and US interstate sources. This external dependency puts PGE, as an energy broker, at the mercy of external markets and geopolitical conditions.

Additionally, California will not operate nuclear power plants by 2025, leading to a limited energy supply mix. These factors significantly impact consumer energy bills and add to the complexity of utility management. Consumers in California are thus faced with a dual burden of both governmental oversight and private enterprise operations.

Arguments Against State Takeover

Some argue that the state could take over PGE to better manage the utilities, but these claims are often misguided. Critics point out that the state is already deeply involved in the oversight of utilities, adding complexity rather than simplifying the process. Furthermore, the state's involvement would likely lead to incompetent and politicized management, reminiscent of the inefficiencies often associated with socialist policies.

Another argument against state management is that it would disrupt the economic balance of rural areas. Breaking up the utility into smaller, city-centered units could undermine the economic viability of rural electrification projects. Moreover, dismantling the current grid system could severely impact disaster response and investment in necessary upgrades.

Financial Aspects and Bonding

For some, the idea of government involvement in utilities is financially appealing. California Governor Newsom suggests the state could buy the utility by issuing municipal bonds. However, this solution is fraught with issues. Purchasing the utility would likely lead to bond interest payments equivalent to the dividends private companies receive, further burdening taxpayers.

Furthermore, the state's management of PGE would be too politically charged and would fail to attract necessary investment capital. This misallocation of resources would be counterproductive, as it would not provide the technical and financial support needed to maintain and modernize the utility infrastructure.

Conclusion

While the idea of state control over public utilities sounds promising, it is fraught with challenges. The history of utility deregulation, combined with supply and infrastructure issues, suggests that the state is not the most capable entity for managing these utilities. Keeping the current decentralized system, with its flaws, might be more effective in ensuring stability and reliability for California's energy needs.