A Shocking Theft

Environmentalists use California's wildfires to fleece the public.

It's been superseded by more recent news, but just a few months ago, large chunks of California went up in flames in the ironically-named Camp Fire.  This fire destroyed the even-more-ironically-named Paradise, California and killed 85 people.  The cause?

The Camp Fire began on the morning of Nov. 8, 2018, when a wire snapped free of the company’s Caribou-Palermo transmission line. A PG&E worker soon spotted a quarter-acre fire beneath it, the company has disclosed.

A Wall Street Journal investigation found that the company repeatedly delayed maintenance work on the line, a project PG&E had estimated before the fire would cost $30.3 million. The company shut down the line earlier this year after discovering safety problems and has said it might consider decommissioning it following a closer inspection.

If the Journal's numbers are to be believed, properly maintaining the line would have cost $30.3 million; the damage liability for the fire is expected to be north of $30 billion. It should come as no surprise that Pacific Gas and Electric (PG&E) has filed for bankruptcy protection while they still have enough cash in the bank to pay the attorneys.

So far, so apparently understandable: Any person or company ought to be liable for the damage they cause due to their own actions or negligence.  If the bill is higher than they can pay, bankruptcy is the appropriately capitalist response: the stockholders are wiped out, the executives are sacked and replaced by trustees appointed by the bankruptcy judge, whatever value remaining in the company is distributed fairly to creditors, and on down through the well-understood procedures dating back hundreds of years.  Nobody will get everything they want, or even deserve, but all whom the court judges as worthy will get something proportionate.

Except that PG&E is far from being a capitalist business, red in tooth and claw.  It is instead a heavily-regulated utility monopoly, a child of the state that is only quasi-independent if that.  Since it owns all the electric lines in its service area, it does not really compete with other independent businesses; its operations and pricing are at the mercy of political appointees and bureaucrats in the employ of the State of California, and in some cases local municipalities as well.

Smoke and Mirrors

Should PG&E have done a better job of maintaining its power lines?  Obviously; but to do so, it had to have sufficient money for repairs.

An ordinary business makes sure to set prices at a level that can cover its operating costs plus a profit.  If this isn't possible, the board of directors will ask hard questions and eventually make major changes - maybe exiting an unprofitable business line, maybe selling out to a larger firm, or some other solution that will allow a return to profitability.  If worse comes to worst, they'll shut down to avoid further losses.

PG&E can't do this.  It's not allowed to discontinue electrical service to remote towns in the high mountains.  It's not allowed to charge people in barely-accessible locactions extra for providing high-cost electric service at a loss.  It's not allowed to raise electric rates without the permission of the government.

Now, one could argue that PG&E spent millions of dollars on executive salaries that might have been better spent on maintenance.  That's true, but it's equally true that there aren't that many people able to effectively run a business of the size and complexity of PG&E, and such people don't come cheap.

The sad reality is that its corporate form is nothing more than an illusion: everything PG&E does is entirely at the behest of government even though it operates under a fig leaf of capitalism. Why do the socialists who run California bother with an entity like PG&E?  Why don't they just take it over as The People's Electric Power Company, like their fellow-travelers in so many other places?

There are actually a number of good reasons.  For one thing, as the Camp Fire illustrates, if PG&E looks like a "company," capitalism can be blamed when things go wrong.  The long-failing LAUSD K-12 schools are a counter-example: the failures of the public school system and homeless housing can only be blamed on government since private industry has nothing to do with them.

For another: voters would be scandalized if the governor and legislators took home multi-million-dollar paychecks.  As a "private business," PG&E has far fewer restrictions - and, as a creature of the government, one can expect most executives to be friends of, and generous donors to, those in power.

Do disasters like the Camp Fire show the pitfalls of this corrupt model?  Far from it: in yet another illustration of Rahm Emanuel's infamously Machiavellian advice to "never let a crisis go to waste," they reveal how utterly amoral leftists use the suffering of citizens as just another way to enrich their allies.

The Golden Fleece

This most recent disaster is not PG&E's first; indeed, it's not its first bankruptcy.  What happened last time?

In the aftermath of PG&E’s 2001 bankruptcy, the company agreed, in exchange for financial relief, to protect or donate more than 140,000 acres of its land holdings, many of which encompass California’s key forests and watersheds. While the company would retain about two-thirds of the land, the rest was to be donated to public agencies and tribes.

In a normal bankruptcy, the job of the bankruptcy judge is to make sure that the company's value is distributed to creditors.  Traditionally, that means people who are owed money by the company.

With PG&E, though, the company, as a creature of the government, could not continue to exist without the blessing of bureaucrats and politicians - in California these days, Democrats to a (wo)man.  Secure in its control of the politics, the left used well-honed techniques of lawfare to ensure a favorable outcome:

The year before PG&E filed for bankruptcy, the company announced it would auction off some of its hydroelectric plants and the lands associated with them, sparking a panic among public agencies and conservationists who worried about timber and mining companies buying up the land for resource extraction. The company ultimately held onto its hydroelectric assets, but shortly after the bankruptcy filing, a coalition of conservation groups pounced on the opportunity to permanently protect them. The group established itself as one of PG&E’s many creditors, which meant it could object to any proposed settlements and add land protection to the bankruptcy court’s agenda.

Bankruptcy filings of billion-dollar businesses are vast, complex, messy, and lengthy, particularly of utilities which can't be permitted to shut down.  There are ways to move things along more quickly to everybody's benefit, but shortcuts generally require unanimous consent of all creditors.  This makes sense when all creditors are ordinary capitalists and investors who just want as much money back as quickly as they can get it.

With modern bond markets, though, anybody can become a creditor by simply buying a bond, which won't take much money at all if it looks like the firm is going under.  As we see here, some of these "investors" couldn't care less about the money they paid for the single distressed bond they bought to get a blocking seat at the table.  They're playing for much higher stakes, objecting to any reasonable settlement because they want to force an unreasonable settlement.

PG&E owned billions of dollars' worth of property.  By rights, every last square inch of their spare land should have been auctioned to pay creditors as much as possible, but this phony "creditor" didn't want the land to go to the highest bidder.  Instead they arranged a corrupt bargain with political regulators:

In 2003, PG&E, the coalition, and the California Public Utilities Commission brokered a legal settlement: In exchange for permission to raise rates on consumers to pay off debt, PG&E would earmark $70 million that would go toward the effort to protect or give away 142,000 acres of land.  [emphasis added]

Run the numbers.  $70 million for 142,000 acres is less than $500 per acre of land, most of which was wooded.  Timber companies would have paid a lot more for it: one large tree alone is probably worth more than $500, and how many trees are found in an acre of forest?

Read the settlement terms again. The environmentalist "investor" who had been using bankruptcy law to block a settlement combined forces with the government regulator whose chartered job is to keep electric rates low.  Instead of ripping off the other creditors badly enough to make them block the deal, they ripped off people who buy electricity.

What was the bargain?  The regulator would wave a wand and allow PG&E to raise electric rates so that it could come out of bankruptcy and take care of the other creditors well enough that they would accept the deal.  Raising rates is the exact opposite of what the regulator is supposed to do, but raising the rates magically created more cash.  A chunk of that money would be turned round and given to... environmentalist organizations, who no doubt give well-publicized awards to Democrat politicians at their annual banquets along with their campaign contributions a.k.a. bribes.

There's nothing wrong with government purchasing beautiful land and opening a public park.  The proper way to do this, though, is with taxpayer dollars; to do this, you have to raise tax money, debate its expenditures against all the other things that could be done with the money, and pass a spending bill voted on by the people's actual representatives.  Environmentalists know most constituents wouldn't be willing to pay the billions of dollars the PG&E land is actually worth.

By this corrupt and undemocratic (but completely Democratic) ploy, the left managed to accomplish their ends of more environmentalist controlled land without new taxes, without an appropriation, without any voting whatsoever.  The taxpayers still pay the price, just in their electric bills rather than their tax bills, and this way there's nothing they can do about it.  There isn't even an elected official to blame - just bureaucrats who everyone hates anyway, and nonprofit employees nobody's ever heard of.

Ordinary people of California already are grossly overtaxed, and now they must pay even more insane electric bills than they did before.  But nobody cares about them.  And why should anyone?  They keep voting Democrat no matter what.  Why not fleece them six ways from Sunday, if there's never a price to be paid at the polls?

Meanwhile, the money pours out of your pocket and into their "charity."  Whom do we think will benefit from this new bankruptcy?

Petrarch is a contributing editor for Scragged.  Read other Scragged.com articles by Petrarch or other articles on Environment.
Reader Comments

"In exchange for permission to raise rates on consumers to pay off debt, PG&E would earmark $70 million that would go toward the effort to protect or give away 142,000 acres of land."

This summary of the deal is unclear when later on you imply PG&E received $70 million for the 142,000 acres. What PG&E received, however, was the right to raise rates. If by "earmared", you mean "set aside", I'm not sure how you can say they only received $500 per acre. The increased rates could have been much mote, or much less, than that.

Do you see my point?

June 30, 2019 11:54 PM

Maybe I'm missing a point here, but $70m divided by 142,000 is a little under $500/acre. The land was worth far more than that if auctioned, and in that case it would have been different buyers paying for it. As it was, it looks like the land was sold below value (stealing value from creditors, shareholders, and bondholders), and even the value that was paid, was done so forcibly via an unjustified rate hike on everyone who gets an electric bill.

July 1, 2019 5:22 PM

There's also a hidden tax: the $1,000 generator we HAD to get in case PG&E pulls our plug. Where we live it's 100 degrees F every day in the summer. Had a blackout many years ago that lasted all night and there's no way we'll do that again. Now if we could just afford gas to run it!

July 2, 2019 2:02 PM

@JalanBoss - you are totally correct, there are immense economies of scale in generating a lot of electricity at a central site even with the costs of maintaining the wires for the distribution system. That is why relatively few factories have their own generators. It seldom makes economic sense unless the plant produces a lot of heat or steam that could be converted to electricity reasonably effectively.

Let's be fair to GP&E for the moment, however. The California climate is getting dryer. Distributing electricity WILL lead to vegetation fires if there are trees close to the road. It happens even in very wet places. Such fires don't often take off as in California, but they can.

Given California's dryness, what could they do? They can't bury the wires, that would be cost-prohibitive, and clear cutting back for the height of the trees would not pass muster with the tree lovers.

So the only practical thing they can do is shut off the power in times of danger. This will NOT solve the problem, of course, only make it less likely.

What would you suggest?

July 2, 2019 9:25 PM

Thanks Nate. I would have the "company" broken up into smaller, more manageable regional power supply companies. For example, Roseville has their own power company and residents pay a very fair rate for power. Right next door in either direction, Granite Bay, Citrus Heights or Rocklin, PG&E have raised their rates and restrictions without voter approval or input. Also, they force residents to use smart meters, and the only remedy is to pay a ransom over 3 years. I digress, but my point is that they're too large and out of control.

July 3, 2019 11:47 AM

This new PG&E bankruptcy is getting curioser and curioser.

https://www.wsj.com/articles/elderly-wildfire-victims-want-pg-e-to-face-a-jury-trial-over-damages-11562187516

A group of people are suing PG&E. They want a jury trial to blame PG&E for the 2017 Tubbs fire. The Cal Fire inspectors ruled that it was not PG&E's fault, so the insurance companies had to pay for the destroyed homes. The insurers now say that it WAS PG&E's fault based on a large flash recorded on a security camera just before the fire.

If the jury rules that the fire was PG&E's fault, PG&E will have to reimburse the insurance companies for at least $3.4 billion.

Your article talks about the last bankruptcy playing fast and loose with $70 million which enriched the greenies. They seem to have been able to paper that over via rate increases, but $3.4 billion for just one insurance company is a bit more difficult to finesse.

The article starts:

Elderly victims of California wildfires want to haul PG&E Corp. before a jury to answer for its role in the blazes despite the protective shield of its bankruptcy filing.

Backing the call for a jury trial are insurers that have paid for damages from the fires, who say they have evidence California fire investigators got it wrong when they cleared PG&E of blame for the deadly 2017 Tubbs fire.

July 5, 2019 11:00 PM
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