The political debate surrounding energy companies are often split between the left who believe such a vital service should be handled in the public sector and the right who trust in private corporations. This is a debate that will only intensify as energy companies become central in our fight against climate change, but a bankrupt electricity giant in California may offer a test for another alternative for utilities.
PG&E provides natural gas and electricity to most of the northern two-thirds of California and last year had revenues in excess of $17bn. This year the company’s fortunes have dramatically reversed due to them having to pay liabilities following a devastating wildfire in 2019 that they were deemed responsible for igniting. The situation is so dire that the Governor has threatened a public takeover of the company but more than 110 Northern California city and county officials, led by the city of San Jose, are now proposing to turn the utility giant into a customer-owned cooperative.
The structure of the deal has yet to be confirmed but it’s believed that the state government will finance it with $50bn in bonds. The resultant company will be a consumer coop which will keep the company’s service territory intact to ensure that residents of rural, fire-prone areas don’t face a steep increase in costs.
Electricity in California has never been particularly reliable due to the threat of wildfires. In October 2019, 3 power companies, including PG&E, shut off their power in an attempt to prevent wildfires from being started by electrical equipment during strong and dry winds. 3 million people lost utility-provided electrical power on the 27th October for a day.
While this shows the consumer co-operative will not have a high bar to clear it is setting up in an extremely challenging location.
Proponents of the deal will outline how co-operatives are well suited to markets which lack competition like utility companies do. In a market that nears a monopoly corporations would theoretically be able to inflate prices without much consequence. Electricity is a tricky product to boycott. However, in a cooperative profits are retained by customers so the incentive to raise prices for customers to increase profits for the shareholders does not exist. Would the board of directors choose to use the profits to enrich themselves instead of the customers, the customer members can oust them in board elections, where all members have one vote.
PG&E would enter the market as an electricity co-operative, though they do own some power generating infrastructure, distributing electricity and gas across the state.
Electricity cooperatives (co-operatives that distribute electricity to consumers) are widespread in the USA, though have very little coverage in California. Since the Electric Cooperative Corporation Act of 1937 provided federally guaranteed loans to electric cooperatives during the New Deal, most rural electrification has been the product of locally owned rural electric cooperatives, providing affordable and renewable electricity to rural communities. This has been achieved through a process of federalisation, whereby individual co-operatives come together to pool resources, finance and knowledge. This took the form of the NRECA, an organisation which now represents more than 900 consumer-owned, not-for-profit electric cooperatives across the united states with 40 million members.
While member participation in electric cooperatives is typically very low, the cooperative principles of democratic member control are far from meaningless. For example, in 2007 an ordinary member who was unsatisfied with the lack of solar incentives in the country’s largest electric cooperative Pedernales Electric Cooperative, sparked a membership campaign that ended up replacing most members of the board of directors. As a result, the newly elected board started distributing capital credits to the members and set out some of the boldest climate goals in the industry. If you are interested in these sort of campaigns, the We Own It is a network of membership lead campaigns within US cooperatives, focusing especially on electricity sector. We encourage all our readers to join it.
The model is unlikely to be a silver bullet that will fix California’s energy but it has had great success across America and has an innate advantage that can help fix PG&E’s longstanding issues.
The fact the company would feed its profits back either to its customers or invest in infrastructure improvements, subject to democratic procedure, could mean it has greater incentives to channel its profits towards reducing wildfire risks, instead of increasing shareholders bank balances.
However, this will be an incredibly expensive task. PG&E has 107,000 miles of distribution lines, 81,000 miles of which are overhead. The cost to convert all of PG&E’s overhead distribution lines to underground lines would be approximately US$240 billion and would therefore be a lengthy and expensive process.
Research also suggests the model has many benefits. For example, electricity co-operatives in the USA have been shown to bring many benefits to their customer owners including providing greater satisfaction to customers than conventional energy companies. In the largest survey of customer satisfaction of US electricity providers, on average co-operatives scored higher than other electric companies, with all 3 of the highest rated companies being co-operatives and 7 of the top 10.
Another study from 2020 study showed that co-operative electricity companies provided better services for lower costs and electricity co-operatives in America have been so successful they have now branched out into internet services and provide more than a third of rural America’s fibre broadband.
The fact 71% of Californians approve of legislation enacted last year (Senate Bill 100) that requires all of the state’s electricity to come from renewable energy sources by 2045 suggests that democratic control of the company could lead it to set out bold environmental goals. Electricity co-operatives in the USA produced or purchased 25 times more solar energy in 2017 compared to 2010 showing that the democratic structures can drive progressive business policy.
Critically though this shift in ownership might also help drive a reduction in emissions in California. According to statistical evidence, collated by Sustainability, cooperatives play in Europe play an “important” role in the transition toward renewable energy systems despite factors that have reduced their creation rate.
PG&E’s takeover should be keenly watched in Europe and other countries seem keen to replicate the structure. The Welsh Government are considering setting up a new Energy Mutual modelled on the Water Mutual, Dwr Cymr. Moves such as this could add an extra dimension to debates surrounding energy.
Overall, co-operative ownership for energy could be a new path that could garner bi-partisan support should PG&E or another large energy co-operative succeed. If the co-operative can improve on services and be a market leader in renewable energy it should help widen the debate on energy to beyond public vs private.