June 17, 2020 – In an unprecedented, historic and dramatic moment, California’s largest utility company PG&E pleaded guilty to 84 felony counts of involuntary manslaughter in a California fire that totally destroyed the town of Paradise in November 2018. See the link to the article in MarketWatch.
As part of the plead, PG&E will pay a maximum of $3.5 million in fines plus $0.5 million for the cost of investigation. This is on top of the $25.5 billion the company agreed to pay for losses from the 2018 fire as well as other fires in 2017.
Back in January 2019, I wrote that since revenue for utility companies are regulated, it is hard to affect revenue except by significantly adding more “investments” over time. Expenses, on the other hand, are within the control of management. The more that utility companies can reduce their operation and maintenance expense, the more profit they make and, therefore, bonus and incentive compensation to management. Keep in mind that, for the most part, there is little penalty for utility companies that don’t keep proper maintenance of their systems.
With the exception of a very small percentage of rural cooperatives, utility companies are “private” for-profit companies – beholden to shareholders and management. Unlike a free and competitive market, utility companies are granted a franchise that essentially allow them to operate as a monopoly. Customers cannot switch utility company if they are unhappy with the service.
The historic plead to manslaughter by PG&E is a continuing reminder for lawmakers to rethink the traditional model where for-profit utility companies are allowed to operate as a monopoly to provide essential public service (i.e., electricity) with built-in conflicts of interest against public interest should continue or not!
See the January 2019 articles:
“Rethink Utilities?” https://www.njcharge.org/single-post/2019/01/30/RETHINK-UTILITIES
“It Finally happened” https://www.njcharge.org/single-post/2019/01/15/It-Finally-Happened