Don’t let PG&E’s perfectly good bankruptcy go to waste

California has the will, the ability and the technologies to dramatically cut greenhouse gas emissions and create resilient communities across the state. But Pacific Gas and Electric Co.’s structure and regulatory framework are barriers to California’s clean energy future. Because they were designed for a top-down, centralized energy supply system, they impede electric-grid innovation and have no place for decentralized decision-making by those who actually use energy. Now, with PG&E in crisis, is the perfect opportunity to get the 21st century electric utility California needs.

We first need to dispel the notion that California needs PG&E to achieve our goals as a global climate-action leader. That claim makes two false assumptions: That PG&E as structured today is capable of fulfilling the need and that there is no alternative. Such a notion also diverts the policy focus away from the question of how best to achieve urgent state goals and focuses instead on how to save the status quo.

PG&E’s behavior for many years, starting with the San Bruno gas pipeline disaster, should make it clear that PG&E is challenged in its ability to ensure public safety and reliability, much less lead a transition to the energy future we want. And as the financial costs of PG&E’s total liabilities appear on utility bills, and the costs of solar energy and energy storage decline, more consumers will seek to produce their own power off the grid.

As for alternatives to the status quo, there are many energy revolutions going on at the “grid edge” where the distribution wires meet the energy users. While disruptive new technologies continue to proliferate, local governments are responding to their residents’ concerns about climate impacts and resilience and are moving to integrate energy planning with urban and county planning. This is where the action is, where initiatives to move away from fossil fuels and ramp up resilience to climate change are being defined and implemented.

So let’s consider: Should PG&E be saved? Should it be restored to financial stability and shareholder profitability, and allowed to continue as a monopoly over some aspects of energy? That should depend on whether PG&E will enact structural changes and adapt to regulatory provisions that align with California’s 21st century needs.

As a 20th century investor-owned utility, PG&E was designed for rapid investment in enormous infrastructure, to build out the grid to deliver energy from large, distant power plants to dense urban areas. Our 21st century needs are different.

We need to move away from fossil fuels throughout society, not just on the electric grid. We need to build resilience in the near term for climate change — effects that grow more severe every year, the “new abnormal.” That means designing the grid to be less vulnerable to disruptions and to contain their impacts, while enabling communities to keep on the lights when disconnected from the grid.

To stay alive, PG&E will need help from the state, particularly with wildfire liability. For example, the inverse condemnation law threatens the creditworthiness of PG&E and the other investor-owned utilities. If the state is going to assume some costs of wildfire protection and some risks of future losses, then it must require structural changes to PG&E and share in any financial upside for utility shareholders. Addressing wildfire risk without changing PG&E’s structure would only give a windfall to hedge funds and others who scooped up PG&E shares as its financial health worsened.

Here’s what a PG&E designed for the 21st century needs to do:

• Change the monopoly distribution wires service into an “open-access” distribution system operator. This could be done with little or no disruption to activities and jobs related to PG&E’s transmission and distribution systems.

• Design distribution system operator rules to discourage utility-owned infrastructure and instead to incentivize desired performance and outcomes.

• Recognize the crucial role to be played by local governments and their energy procurement agencies in achieving California’s climate and energy goals.

• Direct the distribution system operator to partner with these local entities to plan and implement local clean and resilient energy systems.

• Develop a distribution-level market where local energy resources can be compensated for delivering power and supporting the grid, in particular as clean alternatives to costly grid infrastructure. This requires an open, participatory distribution planning process and streamlined, transparent procedures for interconnecting and dispatching grid edge resources.

• Implement data access provisions that enable cities and counties to plan electrification and resilience projects and third-parties and communities to develop local resources to implement those projects.

• Relieve PG&E of the “provider-of-last-resort” role and redesign that function as other states such as New York and Texas have done.

• Limit the lifetime of a license to operate the gas distribution system to 25 years. That would be in keeping with the state policy of eliminating natural gas as a residential fuel by 2045. Consider spinning out PG&E’s gas business into a separate company.

The above steps can help California lead the way on meaningful climate action with global impact. Let’s not let a perfectly good bankruptcy go to waste.

Mark Ferron was commissioner on the California Public Utilities Commission from 2011 to 2014 and was a member of the Board of Governors of the California Independent System Operator from 2015 to 2018. Lorenzo Kristov, Ph.D., was principal in market and infrastructure policy at the California Independent System Operator from 1999 to 2017.