The subtitle, “The Fall of PG&E — and what it means for America’s power grid,” is very telling. The book reads like a corporate obituary.

It’s a tale of woe from beginning to end, with just a glimmer of hope at the end as one looks at the future of northern California’s investor-owned utility under a new CEO.

The book has a razor-sharp focus on the wildfires that were caused by PG&E over the last few years, several of which resulted in criminal charges being filed and upheld against the company. Thus, it delves deeply into the transmission lines that were so poorly maintained that when the fires occurred, the company did not even know how old they were. In one instance, the fire was caused by a tiny hook that broke because it had outlived its life long ago.

That was in 2018. The fire burned down Paradise, a town in Butte County. It prompted an individual to observe that one could count on PG&E to turn paradise into hell. The fire killed 85 people, spread over 150,000 acres and caused $16 billion in damage. The company tried to cover up its culpability but was found guilty and went bankrupt, the second time in two decades.

The book also discusses the explosion of a gas pipeline in San Bruno near the San Francisco airport which had occurred earlier, in 2010. The ensuing fire destroyed 38 homes and damaged 70. It killed eight people, while injuring dozens. When investigations began, it became apparent that the company did not even have any systematic records about the history of its pipelines. Eventually, it was found that the pipe had been laid in 1956 and was poorly welded.

PG&E is probably the only utility that has gone bankrupt twice. A major Hollywood film has been made about it^[1] and there is a veiled reference to its foibles in another film. It’s a company that for years had not one but two CEO’s, one for the parent corporation and one for the utility (which was the only subsidiary).

Its CEO’s have come and gone as one crisis has faded and another arisen. Their comings and goings have lent unenviable notoriety to the utility. Every new CEO would come in with much fanfare — four out of five times from other states. Their incredible sign-in bonuses would often make the news. They would leave with opprobrium on their face but with an incredible severance package that softened the hurt. One of them left with a package that amounted to $35 million.

The most notorious CEO was Peter Darbee. PG&E brought him from a telephone company and appointed him as CFO. With time, he rose to become CEO. Darbee, anxious to make his mark, hired Accenture, a very expensive management consulting firm, to remake the culture of the utility by “transforming” it. At least a hundred million dollars were spent on consulting fees with no results to show for the largesse. Mounted between the elevators on every floor was a “transformation” poster that, despite its complexity, said nothing tangible.

Accenture tried to benchmark the company’s process against its peer but found that PG&E did not even have data on the condition of its wires and pipelines. Record keeping was not a priority. There was no budget for it.

Darbee’s arrogance was legendary. He was widely disliked at PG&E. He surrounded himself with MBAs from top schools and they worked on developing slick presentations that he gave at forums around the country. Another sign of his arrogance was that executives were given priority when they pushed the elevator button. The elevator immediately came to their floor, sometimes with other employees in it who had wanted to go to a different floor.

In his search for greater glory, Darbee fired as many as 45 officers to transform PG&E. Unfortunately, with their firing, the company lost a lot of institutional knowledge since he mostly replaced them with people from the finance or telecommunications communities.

The book does not delve into the details of his era. From people who worked at the utility, I learned that the new executives could not tell the difference between a kWh or a kW, let alone understand volts, VARs, and reactive power. Demand charges, time-of-use rates, dynamic pricing and real-time pricing were similarly alien concepts.

According to a senior manager at the utility, Darbee was the inspiration for the pointy-hair boss in the cartoon script, Dilbert, whose creator, Scott Adams had worked with Darbee at PacBell.

The book does not discuss why “community choice aggregation” (CCA) began to take off in California, beginning with Marin County. This movement was driven largely by anti-utility sentiment, a concern that its rates were too high and that the power being delivered was neither green nor locally sources.

It’s public knowledge that PG&E felt that it would potentially lose all its customers to these new entrants. It fought tooth and nail to ward off the CCA threat, spent millions on its anti-CCA campaign, and failed. A state law was passed to end PG&E’s harassment. Today, more than 60 per cent of the customers in its service territory are now served by CCAs.

About a decade ago, droughts became an accepted feature of California’s hydrology. The book tells us that PG&E hired an engineering firm, Quanta, to look at the wildfire risk associated with its transmission system. Quanta found that the risk was high since 60 per cent of the transmission system was built between 1920 and 1950 and nearly 30 per cent of the remainder were built in the first two decades of the 20^th century. In the midst of this, PG&E was penalized by the California Public Utilities Commission (CPUC) for diverting nearly $500 million intended for vegetation management to shareholders.

The book discusses the rapid turnover of CEOs at the company. After the 2017 wildfire disaster, CEO Geisha Williams, who had been brought in from Florida a few years earlier, was escorted out of the door late on a Sunday. Bill Johnson was brought in from the Tennessee Valley Authority, where he was the most highly paid federal employee. Previously, he had been CEO of Florida Power, which had merged with Duke Power, to create Duke Energy. He was appointed the CEO of Duke Energy but fired within an hour for reasons that were not disclosed. He left with a multimillion dollar severance package.

Johnson instituted the Public Safety Power Shutoff (PSPS) program at PG&E, which meant that thousands of customers had to endure days without power. It would prove to be his undoing. At one public meeting, a woman complained about how much discomfort she and her young children had to endure during a multi-day PSPS event. His response, “at least your house did not burn down,” was devoid of empathy and totally tactless.

He was replaced with Patti Poppe, PG&E’s fifth CEO in a decade. She was serving as the CEO of Consumers Energy, the second largest utility in Michigan, which is a third of the size of PG&E. As with the new arrivals at PG&E, she started reshuffling the executive deck, bringing in executives from Florida and Southern California. On social media, she began posting selfies of herself with the rank and file of the company in different locations. Her first year compensation of $51 million made the news.

She is now regularly appearing in the company’s ads on TV. In the book, she is quoted as saying that the company cannot do anything to prevent trees from falling on its power lines. Thus, it is going to underground 10,000 miles of distribution lines at a cost of $20 billion. Some experts are of the view that the costs could be even higher, perhaps by another $1520 billion.

In theory, undergrounding would reduce the risk of the lines triggering a fire by touching trees or vegetation and also reduce the need to spend money on vegetation management in perpetuity.

It would allow the company to keep more of its lines energized when the Diablo winds are blowing, avoiding the need to declare PSPS events. But the book makes it clear that undergrounding would not be an easy task. It’s unclear whether even half of the lines can be buried. Undergrounding will require extensive permitting, permissions from landowners (including the federal government), complex engineering, and a large amount of labor. Meanwhile PG&E is being pressed to upgrade its system for electrifying the other 95 per cent of its customers.

Furthermore, undergrounding just the distribution lines will not eliminate the risk of triggering wildfires. Transmission lines are very difficult to bury and are not included in the company’s underground plan. Thus, PG&E’s wires can still trigger wildfires.

Then comes the issue of cost. The company is already asking the state regulators for $7.6 billion in new investments through 2026, which is likely to raise customer bills by 5 per cent each year. To that will be added $2035 billion for undergrounding the distribution system. All of these investments are likely to raise the rates customers pay by 50 per cent by 2026. But CEO Poppe has this to say, “We know that we have long argued that undergrounding was too expensive. This is where we say it’s too expensive not to underground.”

Whether the regulators will approve this mammoth amount remains to be seen. What it will do to customer bills is quite certain: they will skyrocket. PG&E already has some of the highest electric rates in the country. What will that rate hike do to the state’s goals to replace gas furnaces with electric heat pumps? How much will consumers’ energy burdens rise? Will rising bills accelerate the shift to rooftop solar panels and even the departure of customers behind their own microgrids? The book does not discuss these questions.

In many parts of the utility’s service territory, the distribution lines are already buried in the ground. Yet they have experienced power outages, even under normal weather conditions.

In areas where the power lines are above ground, wires are often seen running through trees or very close to trees. The poles are often made of wood and many times they are leaning into the roadway at an unsafe angle. Insufficient money has been spent on vegetation management. This is not discussed in the book.

The book also does not investigate why the company has had a culture of arrogance going back to the 1980’s, long before the bankruptcies, the San Bruno explosion, and the fire in Paradise. PG&E’s disasters have become an irritant for utilities around the globe. One energy expert documented 20 management errors by PG&E that had cost customers billions of dollars (but often made money for shareholders).^[2]

Early in PG&E’s history, David Roe, an attorney for the Environmental Defense Fund, wrote “Dynamos and Virgins,” a critique of the company’s business model: build, build and build. That’s how all utilities made money. The bias is there even when less expensive options, such as energy efficiency, demand response, and small scale solar can substantially reduce the need to build power plants, transmission lines and distribution lines, along with the associated facilities.

The problems go back further in time, with the construction of the Diablo Canyon nuclear power plant. The original cost estimate was $1 billion. But due to major mistakes in construction, it ended up costing more than five times as much.

Much of this “colour” is missing in Katherine Blunt’s book, which is based mostly on interviews with the victims of the company’s disasters, the wildfires, and the pipeline explosions; interviews with the prosecutors, the judges, and the juries; and on a diligent review of public documents. The customer dimension is absent. That keeps the book from diving deeply into the company’s culture, which was visible long before the wildfires.

Even with these limitations, the book is a must-read. It documents in intimate details the numerous blunders that have tarnished, perhaps irrevocably, the image of one America’s largest electric and gas utilities, whose service area includes the renowned Silicon Valley.

Other utility executives should read it as well, so they come to know what not to do. And, most importantly, every regulator should read it. In many ways, the indictment of PG&E laid out in the book is an equally strong indictment of the CPUC. Indirectly, the book also impugns the governors who appointed them and the legislators that passed the laws enabling PG&E’s misconduct not once or twice but numerous times.

* Dr. Ahmad Faruqui is an Economist-at-Large with four decades of consulting, research and teaching experience.

1. The company was found culpable for contaminating ground water.
2. Richard McCann, “PG&E apologizes, yet again” (2019), online (blog): Economics Outside the Cube <www.mcubedecon.com/2019/10/14/pge-apologizes-yet-again>.