Pacific Gas & Electric’s (PG&E) rise to becoming one of California’s most powerful energy providers was a success story for much of the 20th century. Yet in recent years, costly missteps ultimately sparked tragic wildfires and bankruptcy—marking an unfortunate end to its long reign in the Golden State.
So, what are some important takeaways from PG&E’s troubled history? Hindsight is 20/20, but if the company had kept better records throughout its decades of operation, it likely would’ve taken better care of its equipment, and potentially prevented one of the deadliest wildfires in California history.
A short history of PG&E
PG&E was founded in 1905, just two years after the discovery of natural gas in San Francisco. The company rapidly expanded throughout the state, acquiring other utilities on its way to becoming a monopoly by the 1920s. As California’s population expanded, PG&E grew along with it.
The push for smaller government in the ‘80s, and higher-than-average electricity prices in California, led to calls for deregulation of the electricity market in the early ‘90s. The state hoped that fewer regulations would incentivize utilities to compete with each other by investing in better equipment that could deliver power more cheaply and efficiently. The days of utilities as ‘protected monopolies’ were over.
Amid other factors, major swings in oil prices caused PG&E to sustain heavy losses throughout the decade, and the company filed for bankruptcy in 2001. Unfortunately, it was only the beginning of the company’s woes.
Disaster struck in 2018 when the Camp Fire raged across California for more than two weeks. By the time it was finally contained, it had burned more than 240 square miles, killed 85 people, and created more than $16 billion in property damage. The Camp Fire remains the deadliest and most destructive wildfire in California history to this day.
What went wrong
According to CAL FIRE, the state’s regulatory body for fire protection, a high-voltage transmission line owned by the company fell and caused the spark that ignited the inferno. And it was able to spread for a number of reasons: an unusually dry period, sustained winds, and sheer bad luck.
The cause of the downed wire was clearly due to a lack of capital maintenance. A hook holding the wire hadn’t been replaced in nearly a century, and eventually cracked, leaving the open wire shooting sparks into the flammable shrubbery below.
Moreover, during its decades of frenzied acquisitions, PG&E failed to combine documentation from its subsidiaries into a coherent whole. During the resulting investigation, prosecutors found that the company was missing thousands of essential documents, including ones that would’ve indicated an abundance of necessary repairs and replacements across its portfolio.
Katherine Blunt summarized what went wrong in her bestselling book, California Burning:
“PG&E lacked records on the condition of its power lines and pipelines, making comparisons difficult. In a 2005 presentation to the company, Accenture stated the obvious: PG&E could better target its maintenance spending if it had better data. It suggested that the company invest in gathering it while also cutting costs.”
What today’s utilities can learn from the tragic event
For much of its history, PG&E pursued growth at all costs. Rather than taking time to integrate new service areas into its network, it acquired as many competitors as it could in an effort to increase shareholder value. Eventually, it had acquired more companies than it could keep track of, and very little knowledge about the maintenance requirements across its vast portfolio of transmission lines and other equipment.
This underscores the importance of accurate record keeping. Knowing the amount of capital required to maintain operations over time, and where those investments should be allocated most effectively, is key to keeping customers, regulators, and shareholders happy. Investing in reliable data management systems can help ensure your records are always accurate and up-to-date so you can make informed decisions.
The good news is that capital planning systems have come a long way since PG&E’s rise and fall. Modern Capex solutions use real-time data to help utility leaders make more informed decisions about allocating funds and prioritizing projects. Stack ranking features can identify important maintenance expenses, as well as other opportunities for new growth initiatives based on risk assessment—helping you get the most out of your Capex budget.
What about when those risk adjustments change unexpectedly? Recently, the Inflation Reduction Act expanded incentives for consumers to adopt electric vehicles, solar panels, and batteries, forcing utilities to adapt to increased grid demand. Instead of needing to start from square one to account for assumption changes, cutting-edge tools enable real-time adjustments that ensure projects stay on track and within budget.
A brighter future ahead
From the ever-present struggle between maintenance and growth to more pressing matters like climate change, utilities managers face a host of challenges. To stay nimble in an unpredictable landscape, digital transformation is essential—it’s key to insight, agility, and efficiency for the modern organization.
For capital planners, critical decisions can’t be left to a single line item in a budget. Capital project portfolios and individual projects alike need to be evaluated carefully and consistently.
If you want to learn more about challenges and opportunities for capital planning in utilities, sign up for our upcoming webinar.