Arnold, CA….Over the last few days one question has consumed us during the PSPS Outages & Kincade Fire debacles. Can PG&E survive this? No matter how we did our calculations financial, marketplace and political the answer was always no. We believe the highest revenue point PG&E will ever have was this past summer and over the next year of so they could and probably will lose a significant portion of their revenue.
How possibly could a monopoly lose revenue when overall electricity consumption will only increase in the future? Three words, Technological Determinism & Goodwill or more accurately a complete lack thereof.
Lets start with the last word first, goodwill. Does anyone and this includes the current top management brought in to shepherd the utility during bankruptcy really think PG&E deserves to live or will live on?
Probably not as starting with the deadly San Bruno gas explosion in 2010 the last few years has been a steady drumb beat of bad news culminating with last year’s Camp Fire. The numerous other incidents included the Butte Fire that destroyed over 500 homes in our backyard. I doubt that even the majority of PG&E employees believe PG&E has a future.
PG&E is not solely to blame for vegetation too close to lines but at this point that probably doesn’t even matter anymore. The probable start of the Kincade Fire in an area that was already in a PSPS Outage was so damaging to what was left of company goodwill that it makes any protestations of competency by PG&E seem like satire.
When the caretaker CEO last week stated that we may have 10 years of PSPS events ahead of us no one mistook him for a Steve Jobs like figure rallying the troops to return PG&E to former glory.
His performance was so poor it actually started conspiracy theories that he was talking down the stock on purpose and that he has a secret plan to profit on the company’s demise.
At the very least he came across unmistakably as someone who is only there to collect his $2.5 million a year as long as he can and then retire to a tropical clime. If the CEO can’t convince the public or even himself that his company has a future then it probably doesn’t have one.
Now to the public and business customers…will any business customer ever trust PG&E in the future to be a reliable partner for their business or even their home needs? The PSPS Outage events with billions in lost business revenue, employees with lost wages, perishable inventory in warehouses, stores, restaurants and home freezers that will have to be thrown away answers that question.
Basically residential, business & even governmental customers will only be customer’s of PG&E because they don’t have a choice. They do have a choice now though on how much electricity they purchase from PG&E or if they have to rely on PG&E. That takes to the next words, Technological Determinism.
In the past the businesses and homes with solar panels on their roofs and at their businesses could be seen as the “Early Adopters” they did it to be on the cutting edge and lower cost but also in many cases to burnish a company’s or their own “Green” bonafides. That is about to change.
Solar panels, energy storage and backup generators are going from the “Early Adopter” phase and passing “Mainstream” to an absolute business necessity.
The systems have also gotten much better the last decade and in most cases they can be managed from your smartphone. Some generators are almost silent and the quality of the electricity produced is utility grade.
Yes, the systems are a serious investment but if a system can ensure that your business, school or home can function regardless of what a utility company does the last few weeks have made the decision for you.
The bonus is the price per kilowatt in most cases is less than what PG&E has been charging you and certainly less than what PG&E will need to charge in the future to have any shot at exiting bankruptcy.
We checked in with a couple of companies that install backup generating systems to see if our demand hunch was valid. One was booked out till February of 2020 and the other was booked with confirmed orders through April of 2020. This was before this last weekend’s PSPS events.
This is where PG&E’s projected revenue goes into a free fall. PG&E will still have the same number of customers but now the number of Kilowatts sold to those customers plummets and in some cases PG&E will be paying their former customers.
Let’s say PG&E after the PSPS Outage mess and possible Kincade Fire liability is $50 Billion in the hole. Currently electric rates in California are already about 40% higher than most other states.
Even if the CPUC granted them a 50% increase in electric rates (Which politically would be close to impossible) PG&E will be actually selling fewer and fewer Kilowatts.
So our hypothesis is that PG&E in it’s current form has an almost zero chance of survival without a full government bailout and even then their revenue model is probably broken going forward.
Please PG&E management the writing is already on the wall. The economy of Northern California begs you to put the company assets up for sale and pull the ripcords on your golden parachutes and let someone else power California’s future.