Do several years of disastrous utility events in California suggest that the standard state regulatory model across the nation is defective? Is it the wrong approach to focus on detailed inputs to utility actions, when the utility knows far more than the regulators can ever discern?
Looking at the how the California Public Utilities Commission was unable to prevent deadly wildfires caused by PG&E’s old, dangerous transmission lines, the deadly explosion of a PG&E natural gas line in San Bruno, or the leaks from SoCalGas’s Aliso Canyon gas storage site raises those questions.
The issues arose this week after a July 10 Wall Street Journal story by reporters Katherine Blunt and Russell Gold, saying, “PG&E Corp. knew for years that hundreds of miles of high-voltage power lines could fail and spark fires, yet it repeatedly failed to perform the necessary upgrades.” Basing the reporting on internal PG&E documents, the Journal wrote that even before the furious Camp Fire last November, “the documents show, the company knew that 49 of the steel towers that carry the electric line that failed needed to be replaced entirely.”
When the Journal story appeared, U.S. District Court Judge William Alsup, supervising PG&E’s criminal probation in the 2010 San Bruno gas pipeline explosion, issued an order that PG&E “file a public statement with the Court responding to the report on a paragraph-by-paragraph basis stating the extent to which each paragraph is accurate. The offender (PG&E) may not evade response by saying, for example, that it cannot know what documents the Wall Street Journal reviewed.”
In a statement to Utility Dive, a PG&E official said “We don’t agree with or support the Journal’s conclusions.”
The Journal article prompted a tweet thread from former (he call himself “recovering”) Montana utility regulator Travis Kavulla raising the broader question about the ability of regulators to effectively probe utility operations. He wrote, “The lesson some are drawing from this is ‘how can we make sure the regulator knows what the company management knows about the risks the utility faces?’ or ‘how can we make the regulator better informed?’
“That, as both the article tacitly points out (and the judge presiding over [PG&E]’s probation directly observes), is sort of hopeless. There was such a mound of information to wade through that processing it in real-time was never going to happen.
“The lesson I draw is: You should have a system of regulation that focuses on outcomes, making the inputs (which are often the object of regulation) less relevant. Because the PUC, customers, judges are never going to know as much about the inputs as the utility does. An example: What is the appropriate average age at which a utility pole of a particular vintage in a particular region should be replaced? Why on earth would we expect government to come up with a precise (likely to be wrong) answer on this?
“Of course, the utility response to the California wildfire tragedy is to *want* regulators to take responsibility for the particulars of their business, in effect to receive pre-approval of whatever they might do. That, however, merely shifts risk to those least in a position to know what really is going on.
“A better approach, as I keep harping on, is to TIE UP PART OF A UTILITY’S RETURN EXPLICITLY TO SAFETY OUTCOMES (or any other public policy outcomes that strikes your fancy, for that matter). That’s the only, real way to overcome the asymmetry.”
Kavulla, a former president of the National Association of Regulatory Utility Commissioners, is currently director of energy and environment at the Washington-based free market think tank R Street Institute.
–Kennedy Maize