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The Cost of Doing Business in California Is One Blackout a Week

Mark Chediak
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The Cost of Doing Business in California Is One Blackout a Week

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It was only expected to happen a couple times a year -- and just as a last resort.

That’s what utility giant PG&E Corp. originally said 13 months ago when it outlined plans to stage mass blackouts in Northern California during strong winds, a desperate maneuver to keep its lines from sparking wildfires. Nobody anticipated that, over the course of less than three weeks this month, hundreds of thousands of homes and businesses would have their service deliberately cut off, three times.

The count keeps rising. While PG&E has begun restoring electricity to more than 3 million people who lost power this weekend in the company’s biggest planned blackout yet, the bankrupt utility warned another round of gusts could spur more shutdowns Tuesday.

They are disruptive, to say the least. ATMs can’t operate. Restaurants close. Traffic lights go out. Businesses limp along on backup generators. The two stoppages so far cost various parts of the economy upwards of $3 billion, said Michael Wara, a professor at Stanford University.

And PG&E has said the outages may continue for a decade as it works to fireproof the grid.

That can’t be good news for economic development, Wara said. “Are you going to want to set up high-tech manufacturing here that’s sensitive to having reliable power?”

Read More: Why California Fire Threats Cut Lights for Millions: QuickTake

Just the idea of a blackout hitting a tech company in Silicon Valley has “people totally freaked out,” he said. So far, the headquarters of giants including Google, Facebook and Apple have been spared, as has the city of San Francisco.

Glassdoor wasn’t. The switch was flipped off for the jobs website company on Oct. 9, when PG&E cut power to about 2 million people, and Glassdoor’s offices were closed for two days. Scott Dobroski, a spokesman, said the expectation is that the lights will go out again this weekend.

“Lots of people worked from home, some worked in cafes and coffee shops in San Francisco,” he said. “It’s really tough to speculate on how many of these things this will take for us to consider moving out of the Bay Area. It would take pretty extreme circumstances.”

So far, the blackouts, along with the fires they aim to prevent, haven’t made significant marks on overall economic activity, said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. “This is a human tragedy, not an economic tragedy. In a $3 trillion economy, it doesn’t show up on the radar.”

The macro view isn’t much comfort to those bearing the brunt. Robert Dye, chief economist at Comerica Bank, said he agreed that “if the blackouts are limited in scope and frequency, and confined to rural areas, the overall drag on the state economy will be small.” But for a business, “the lost sales due to blackouts could have severe consequences.”

It’s simple. “After a while, you can’t run a business without electricity,” said Renae Perry, whose family co-owns the Papapietro Perry winery in Sonoma County. She had to close the tasting room during the recent stoppages, though she might have done that anyway because a wildfire was roaring nearby. Fires, she said, “are worse.”

The planned blackouts are a recourse after a string of devastating fire seasons, as climate change roils the nation’s most-populous state with ever more extreme weather.

“Here’s the reality of what California is facing,” PG&E’s utility chief, Andy Vesey, told reporters Friday. “A long-term cycle of years of drought, followed by a historically wet winter, followed by record-setting heat waves and more than 100 million dead trees across California. All of this has created an exponential increase in wildfire risk across our vast state.”

For PG&E, avoiding another equipment-sparked blaze is imperative. The company was forced into bankruptcy in January after its lines sparked deadly conflagrations in 2017 and 2018. Any more will threaten to derail its restructuring efforts.

Shares Plummet

PG&E sank as much as 29% Monday to $3.55 a share, a record low, before paring losses. The company’s stock had already plunged 30% Friday after it said that it detected a problem on a transmission line -- a broken cable on a tower -- near where the recent Kincade fire started in Sonoma County.

The debate is raging among lawmakers, regulators and business leaders over what should, or can, be done to limit the fire risk in California without subjecting its residents to regular outages.

“The vulnerability of our electric grid might affect the decision of businesses over a longer period of time to come here, stay here and grow here,” said Rufus Jeffris, a spokesman for the Bay Area Council, a regional business-backed public policy group. “We’re simply not where we need to be as a state in ensuring the resilience of our energy infrastructure.

Governor Gavin Newsom and others have insisted that power cuts can’t become the new normal. Newsom earlier this week blasted the state’s three major utilities, particularly PG&E, for what he said was their failure to spend enough to make their grids more resilient.

Deliberate blackouts shouldn’t be happening in a place as technologically advanced as California, he said, and the companies should be more “surgical” about shutoffs so they affect as few people as possible.

PG&E, for its part, has said it is striving to limit the impact and is upgrading its grid so it can turn off power to smaller segments of its system, a practice known as “sectionalizing.”

The Hardship

“We recognize the hardship of not having electric service,” the company said in a statement Friday. “The sole purpose of these power shutoffs is to reduce the risk of catastrophic wildfire in the communities that we serve. That’s what we’re focused on during this wildfire season, and right now with a potential shutoff in the next few days.”

Lawmakers have other ideas. Some are calling for a government takeover of the utility. Others want regulators to be embedded within PG&E. Newsom has raised the idea of breaking up the company and said Friday that the state has even approached potential buyers. The mayor of San Jose is trying to enlist cities and counties to support an effort to turn PG&E into a citizen-owned cooperative.

The governor is directing more state money toward backup power systems, solar power and batteries and pushing the idea of microgrids -- smaller, self-contained power networks.

No amount of solar panels, batteries and regulatory oversight, however, will get around the fact that the grid must still be fireproofed. PG&E’s Vesey said that the company agrees a “policy discussion” is in order on the best ways to address the crisis.

“There will be a time and place for that,” he said. “We will be glad to be part of it. But right now, we need to focus all of our efforts on getting through the next extreme weather event coming our way.”

--With assistance from Romy Varghese, Candy Cheng and Gerson Freitas Jr..

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Joe Ryan, Steven Frank

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