PG&E enjoys a near monopoly on energy. So why must its customers pay such high rates? | Opinion

PG&E, the gas and electricity provider for 16 million customers in Northern and Central California, implemented rate increases on Jan. 1 and recently proposed a new fixed charge based on income levels. Around the same time, the company announced record profits last year of $2.2 billion, a 25 percent increase over the previous year.

Since PG&E is an investor-owned utility, this is good news for its shareholders. But not so much for its customers whose costs keep rising and whose electricity is shut off when there are high winds or extreme heat.

Normally, disgruntled customers might turn to a competitor for cheaper prices and better service, but because PG&E is a monopoly, we can’t do that. More on that in a bit.

While the latest round of cost increases, coupled with record profits, has stoked public resentment, two events from 2010 raised questions for me about PG&E’s financial structure. That year two important events took place.

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One was PG&E’s natural gas pipeline explosion in San Bruno that killed eight people, garnered national attention, and resulted in billions of financial penalties.

The other event was Proposition 16, which faded from public consciousness rather quickly. The initiative, sponsored and bankrolled by PG&E, would have made it much harder for alternative electricity providers to compete with PG&E. In other words, they were attempting to stifle the competition. Although the proposition failed, what struck me about the campaign was the $47 million PG&E spent to pass it. Just two years earlier, PG&E had spent nearly $14 million to kill Proposition 7, which would have raised the renewable energy standards for them and other utility providers.

This electioneering and profit-seeking raises a fundamental question about PG&E’s financial structure: Why can’t they use their profits and campaign and lobbying money to provide lower rates and safer infrastructure?

PG&E’s behavior is partially explained by the type of service that it provides. For that, we must consider what a normal market looks like. Typically, there are numerous companies that are created to provide a product. Those companies compete on price and quality. Car makers are an example of this. However, some products have characteristics that do not make them conducive to a normally functioning market. In economic terms, we call these market failures.

PG&E and other utility providers are market failures that we refer to as natural or public monopolies. Normally, government tries to prevent monopolies from emerging (think of the current case against Google) because they have little incentive to charge lower prices and offer quality (or safer) products.

However, government allows natural monopolies to operate because the market for the product does not incentivize competitors to emerge. It is too costly for multiple utility providers to build their own infrastructure to provide electricity, so a government-regulated monopoly is authorized. Rate increases by PG&E and other utilities are subject to Public Utilities Commission approval, but questions remain whether this regulatory body makes decisions in the public’s interest.

But, as a natural monopoly, PG&E and other investor-owned utilities do not have to be for-profit entities. In fact, around California, there are over 40 publicly owned electric utilities that are not-for-profit and charge lower rates.

After downed power lines sparked devastating and deadly wildfires that led to enormous financial liabilities, PG&E filed for bankruptcy in 2019. At that point, the governor and Legislature considered a state takeover, which could have made PG&E a publicly owned utility, but they ultimately decided to leave it a for-profit entity.

However, as PG&E continues to raise rates and costs at the same time that it rakes in record profits, it strengthens the case to make it a not-for-profit entity. Why should its customers pay the highest rates in the state to pad the pockets of wealthy institutions and individuals?

Now some of you might be saying that this liberal professor just wants more socialism. Not true (actually, isn’t it socialism when there is only one provider?). But in industries where a traditional competitive market is not possible — a market failure — then government-regulated monopolies can operate.

However, customers should not have to pay extra so that monopoly can avoid competition and increase its bottom line.

Jeff Cummins is a professor of political science at California State University, Fresno and co-author of “California: The Politics of Diversity.”