The Case for Public Electricity (Neon Liberalism #64, with Ryan Smith)

Samantha Hancox-Li and guest Ryan C. Smith, author and economic historian, discuss the possibility of publicly-owned electric utilities in America. Smith argues that there is a strong case for public power. Electricity distribution is a "natural monopoly," and existing private companies—like Pacific Gas and Electric—are often inefficient and incompetent. Meanwhile, Nebraska and other states already include some publicly-owned power companies, which provide affordable and reliable electricity. Is it time to switch to a new model of power?

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Transcript

**Samantha Hancox-Li [00:00:10]**
Welcome back to Neon Liberalism. I am Samantha Hancox-Li. In this episode, I want to explore what I see as a really interesting evolving area of liberal thought, and that is the return, or the re-embrace, of public production of essential commodities. A greater orientation towards state intervention in the economy that I think liberals are becoming increasingly comfortable with.

And so to explore some of these issues, and especially these issues in the context of electricity and electricity generation, I'm very excited to have on Ryan Smith. Ryan is an author, an economic historian, mostly focusing on the impact of the green transition as I understand it right now, but also the author of a recent essay for us at Liberal Currents, "The Liberal Case for Public Power." So yeah, Ryan, thanks so much for coming on the podcast.

And I guess your essay starts off with some pretty dramatic examples of the failures, or at least some failures, of private electricity utility generation. Can you talk a little bit about some of the problems that you see with private electricity generation?

**Ryan C. Smith [00:01:22]**
Okay. Thanks for having me on, Samantha.

**Ryan C. Smith [00:01:40]**
Sure. So for me, when I think about the problems that come from private electricity generation, it's something that's part of my lived experience growing up in California. I mean, for folks who maybe are broadly familiar, we have our annual fire seasons where big wildfires sweep through large chunks of the state. And something you kind of become aware of as you're growing up is how often those fires are started because the utility companies screwed up in some way or another, or weren't doing proper maintenance, or were cutting corners, doing all the different things that they really shouldn't be, that leads to things like downed wires and towns being burned to the ground.

So it's not something that's abstract in that sense for me. It's something that before I came to it as an economic historian, I was already coming at it from a lived experience of, this doesn't seem to work very well. Or things like the Enron crisis back in 2000, 2001, when the electricity grid in California was privatized and we had rolling blackouts all over the place. I mean, that's a very gross oversimplification, but yeah, so it's not something that's, "This seems like a better idea theoretically." It's, well, this clearly doesn't work because things are constantly burning to the ground or not working.

**Samantha Hancox-Li [00:03:17]**
Yeah, I mean, I think it would be a mistake to understate the fire problem, especially. I mean, that seems like a sort of a uniquely Californian problem, but it's still a very real problem. You talk a little bit about the Camp Fire. I mean, it's kind of a funny name, but not a funny event. This is the one that burned down a large chunk of Los Angeles, is that right? Or am I getting my horrible fires mixed up?

**Ryan C. Smith [00:03:40]**
So this was, until the LA fire, the biggest fire in California history, which sort of -- it's a depressing note that the biggest fire in California history is increasingly becoming an annual event, but another conversation for another day.

But as far as this particular fire, it was in 2018 and it burned up in Northern California, up around Chico, which is a little college town way up in the Central Valley. Completely wiped out -- the Paradise fire, like the town of Paradise. It's also sometimes called the Paradise fire. That was the one where Donald Trump showed up and talked about raking leaves, because sure, why not.

And the cause, the root cause of it, was that there was a faulty connection cap on one of the power lines, and it led to a downed line. And there's this one particular detail that was in the book *California Burning* that talks a lot more about PG&E's history: the company that made the brass fitting went out of business in the 1950s. You can't make these things up.

And so it is a question of public safety, really, of making these grids that are actually safe and functional. And PG&E, SoCal Edison, all these different private companies, just have an absolutely awful record of not doing that.

**Samantha Hancox-Li [00:05:02]**
And yeah, so, I mean, I lived in California for a few years, and I am also familiar with the extent to which PG&E in particular seems to be just a deeply inefficient, mismanaged company. It's been responsible for these huge disasters. I think they had to declare bankruptcy because the amount of damage that they caused exceeded their total assets, which is quite a striking result.

So I guess, why do you think that this makes the case for public utilities in particular? The world is full of mismanaged companies or companies that don't do this or that correctly. Why do you think that public power, public utilities, are a good answer here?

**Ryan C. Smith [00:06:22]**
Because we have examples of public utilities that don't make a habit of causing record-setting wildfires. I mean, that's a bit glib, but if we're going to set the lowest possible bar, we've got good examples of that.

Like the entire state of Nebraska, for example. Like I talk about in the article, it has been completely publicly owned since 1970, and they have the most reliable grid in the United States, the third lowest average electricity costs, and don't really have a history of large-scale disasters that are due to grid conditions. Because as a public utility, their expectation, in the different ways that it's set up in Nebraska, is that they have to meet the needs of the public. They have to provide the service at the most reliable and lowest possible cost, kind of like maintaining roads. It's the same kind of thing if you're wanting to maintain this service and make it accessible and available to people.

So that means, instead of cutting corners on regular maintenance or trying to find ways to maximize return on investment for shareholders, you are investing your money into maintaining operations, upgrades, and also reliably building up staff and core professionals that can maintain those systems. It's just a completely different approach.

And we have that example from Nebraska. We have the LA Department of Water and Power, which serves over a million customers in LA, the Sacramento Municipal Utility District, and many other examples of rural cooperatives and such all over the country. So it's not like this is an unproven model. The United States does it at pretty significant scale. We just don't really talk that much about that.

I think a solid majority, for example, of rural electricity in the United States comes from consumer co-ops and from those kind of rural electrification co-ops that go back to the New Deal. So this isn't calling for something that's strange or unprecedented. It's something we already do.

**Samantha Hancox-Li [00:08:44]**
Yeah, I was very struck by that part of your article. There are theoretical reasons that we can talk about -- we probably will talk about -- but I think it's important to start with these examples, that this isn't some crazy pie-in-the-sky thing. We have done it, and we still do it in a variety of places, and it seems to work quite well, according to some metrics. So I absolutely agree that that's an important place to start here.

So one of the things that you also mentioned in your article is that you're seeing more of a political push for this in California. Scott Wiener, a longtime California senator, California assemblyman -- he's now running for the Federal House of Representatives for Nancy Pelosi's seat, I believe -- and he has a bill that would -- I don't know. Can you tell me about his public utility bill?

**Ryan C. Smith [00:09:56]**
So his public utility bill would allow municipalities to secede from PG&E and set up their own municipal power companies. And this is also something that's not unprecedented. Scott Wiener has been proposing similar legislation for years. There actually was one point back for a hot minute back in 2020 when even Gavin Newsom sort of floated the idea of public ownership of PG&E. He ended up quietly letting that one go.

But this is the latest iteration of something that's been going on within California politics for quite a while. Back, I think, Ventura County, for example, voted on this as a ballot measure a couple of years back, to do the same thing of saying we want to get away from our -- I think theirs is PG&E as well -- we want to get away from them and set up our own grid.

And it's an idea that's so popular that his challenger, Shoycott Chakrabarty, has also similarly said that we should have public ownership over PG&E and the utilities. And it really is becoming sort of interesting how it's being framed, very much as a common-sense position. There's not really this sense of, "I'm a progressive and you're an establishment liberal," or something like that, that's coming out in a lot of the discussion. It's kind of a lot more, "No, we just sort of need to do this because this seems to be the most viable choice. We need to take it away from PG&E because this isn't working, and we know this does work in places where people have done it."

**Samantha Hancox-Li [00:11:47]**
Yeah, so I think that's a really interesting point, that this isn't breaking down on the ideological lines where you might expect. Scott Wiener is one of the most high-profile YIMBY legislators in California, in many ways the country. He's been a "yes, in my backyard" advocate for a long time now. And oftentimes -- I'm a YIMBY myself -- people online will say, "Oh, you YIMBYs, you're just neoliberal corporate shills. You just want to privatize everything. You want to deregulate everything. You don't believe in public ownership of anything."

And so I'm kind of interested in your perspective on how somebody like Scott Wiener, who has more of that YIMBY background, comes around to this public ownership. What does that mean?

**Ryan C. Smith [00:12:38]**
Well, I think it's -- I mean, again, he's been pushing this since going back to, there was a 2019 attempt by the city of San Francisco to buy the local PG&E assets. So it is something he's been pretty consistently advocating for.

And I feel like part of what's going on is that there has been a bit of a shift within the political discussion around what we're doing with our utilities in California. It kind of really breaks down, if it does, along the lines of: let's not change things and keep them the way they are -- which you could say Newsom kind of sort of would fit on that end, because he has not consistently pushed anything similar to what Scott Wiener has been doing around PG&E. And you could say that that position is more just not wanting to deal with the mess that is PG&E. Because as you mentioned before, there was their bankruptcy, where they were massively overburdened in terms of the cost of wildfire damage, which is part of the mess of how the privatized system is set up in California.

But it's that sense of not wanting to take on this thing that could be a real mess to untangle. And it is like that. There's no question that the way that companies like SoCal Edison and PG&E have developed over time has tended to be more ad hoc and reactive. So we're not talking lean, well-oiled machines of capitalist efficiency here that are just ready to be taken over.

But on the other end of it -- and I think this is more compelling -- there's the broad consensus that also has a little bit of a generational element, though not totally, that says, well, this doesn't work. We've tried deregulation and privatization. These are people who, like Scott Wiener and folks like that, are people who would have grown up with the Enron blackouts being a thing.

And so this is something that I think is the reason why the only people that really have an opinion on it that are actively opposed are the California Republican Party. But they're irrelevant.

**Samantha Hancox-Li [00:14:58]**
They don't matter.

**Ryan C. Smith [00:14:58]**
Yeah. They don't matter. No one cares. And of course they're going to say that -- dog bites man, anyway. But it's sort of striking how there is a broad consensus developing that even the defense of PG&E isn't some kind of "the markets work best" kind of thing. It's more like, "We really just don't want to wake the dog right now."

**Samantha Hancox-Li [00:15:23]**
Yeah, I think that's really interesting, right? There may have been a time when it was just kind of philosophical or axiomatic. "Oh, I'm a liberal, and so I have to oppose public ownership of anything." Or, "I'm a socialist, or I'm a progressive, and therefore I think public ownership is always good." And I think we're actually seeing a lot more blurring of these ideological lines, a lot more pragmatism, in a way.

We see actual Democratic Socialist Zohran Mamdani in New York City basically endorsing a pretty strongly YIMBY agenda, saying actually, we need to upzone, we need to change these regulations. And then we see YIMBYs like Wiener endorsing state ownership. And it's just a question of what works, right? Which one of these models is appropriate for this industry versus this other kind of economic sector?

And that's something you talk a little bit about in your essay, that there are some abstract economic reasons we would expect that power utilities in particular be apt for public ownership. Why is that?

**Ryan C. Smith [00:16:17]**
Well, it's economies of scale. And that's a thing that applies everywhere across economics, where, as you build something up and you grow it in size, you gain certain advantages in terms of efficiency of production and skill at manufacturing or providing a service. Essentially, the more you build a thing, the more practice you get at building the thing, or providing the service, or what have you. So you learn ways to streamline it, do it more efficiently. And because you're also working at larger scale, you can engage in a kind of bulk purchasing that smaller producers can't do, which allows you to save and deliver on volume.

And when it comes to things like utilities specifically, historically, those work best when there is only one owner. Because the way that these systems tend to be built is, you can't really have an open market on electricity providers. It just doesn't work that way. The basic utilities of things like the transformers, the power generation plants, the transmission lines -- everything is owned and laid by a particular company or by a particular service provider. It's not like you can say, "Okay, my house is completely hooked up to PG&E, and PG&E is the provider who owns all the things going in and out. I'm going to go out on the market and see who can give me a better deal." Because you're basically locked into that system.

And that was a thing that showed up in the early history of electrification that led to PG&E -- at the time, there were a couple of different companies, going back to the late 1890s, early 1900s in San Francisco, that were competing for market share within the city. And part of the reason why what became PG&E was able to quickly monopolize within the city was because once they got a sufficient chunk of the market share, it was simply impossible to compete with them. Their savings in terms of cost, their ability to provide service at scale, all those things just made them irresistible as a force within the market. So they effectively crowded everybody else out.

And this is a pretty consistent pattern that you see with private utilities, wherever -- when you're talking specifically electricity, or water as another big one that used to be a lot more privatized, and also is heavily privatized in the United Kingdom right now with significantly negative effects on quality of water and providing of service.

So that's sort of a roundabout way of saying: once these systems are here, once you build these particular networks, they are sort of hardwired in. You don't get much flexibility. The conditions, just because of those material realities, don't allow for a competitive market situation to develop. So if that's privately owned, essentially what you're doing is you're paying a tax to a private owner who is not invested in ensuring the best possible service. So you may as well just pay that tax to the public, pay less, and actually get a service that's reliable and safe.

**Samantha Hancox-Li [00:19:40]**
Yeah, so there's a lot there. There's one thing that I do want to push back on a little bit, where you said, well, this is something we see in all aspects of the economy, there's always economies of scale, this is always going to drive consolidation. But there are lots of sectors of the economy that are relatively private markets where we don't see total consolidation. Not every restaurant in America is McDonald's. It's not even true that every fast food restaurant in America is McDonald's. There are some kinds of things where, sure, you can have economies of scale, but there are other factors that nevertheless maintain a competitive market.

But certain kinds of infrastructure or utilities seem to have some other features that -- I mean, as we saw repeatedly, right? We saw this with telephones, we saw the emergence of Ma Bell -- certain kinds of economic factors that drive these markets in particular to consolidate. What are some of those factors?

**Ryan C. Smith [00:20:42]**
Well, it's a question of -- those are what's usually referred to as a natural monopoly, which is essentially where the cost of getting into the market is so sufficiently high that only a handful of players can get started in the first place. And once they've laid down the necessary infrastructure and resources and networks to sustain what they're doing, they have such a significant competitive advantage over everyone else -- like the example I gave earlier of PG&E's own early history -- that there is no effective way of competing with them.

And as you mentioned, yeah, with restaurants or auto manufacturing, there's a lot more variables that are involved that make market competition something that can be sustained by just the dynamics of what happens within those sectors. Because at the end of the day, Ford doesn't own the road that you drive your Ford on, essentially. There's nothing stopping you from saying, "I'd actually like to buy a Chrysler next year," other than maybe you're more familiar with the Ford and you maybe have some brand loyalty or something like that. But those are more market-driven factors.

Whereas when we're talking electricity or water, you actually see similar patterns that happen in broadband providers as well, that often many major metro areas will have only two or three providers, and they all offer more or less the same level of not-great service. And again, it's because once you build the infrastructure and you have all this stuff in place -- in those instances, you could actually also say, back when roads were a thing that was privatized, it's a similar thing. Once you own the road and people are using the road, you're going to pay the toll, because that's the road that goes from London to Nottingham, or whatever it is.

**Samantha Hancox-Li [00:22:20]**
Yeah, right. I don't look out my window and see five different sets of power lines owned by five different companies. There's one set of power lines out there.

So one question I kind of want to ask you is, should we be distinguishing here between electricity transmission and electricity production? I can see that there are these arguments for why the transmission infrastructure has these very strong network effects, these barriers to entry, these extremely high costs to build a grid in the first place that make it a natural monopoly. How does that tie into electricity production? Do you see the same kind of anti-competitive forces at work there? Or is that a different story?

**Ryan C. Smith [00:23:41]**
Oh, yeah. Or at least when you're talking conventional energy production, and it's for a lot of the same reasons. Building a power plant is an incredibly capital-intensive process that requires a lot of specialized technology. You have to go through a lot of legislative and regulatory hoops. Just the background knowledge that you need is by itself a significant barrier to entry, before we even get into the costs that are associated with setting up a natural gas plant or a coal plant or, heaven forbid, we even talk about nuclear energy.

But the thing these all have in common is that they're very expensive in terms of human capital, in terms of actual capital, in terms of getting the necessary approvals to go in. So conventionally, when we're talking about power as it's been historically generated, I would say that's the same. That is changing, I think, with renewable energy, because renewables play by completely different rules. But that's been one of those big limiters on the production side -- this stuff's really expensive to build, it's really expensive to operate.

And particularly when we're talking the baseline for a lot of this stuff was coming originally from first water power and then coal power. These systems assumed continuous inputs of resources and continuous inputs of fuel. So to maintain your coal plant, for example, you need to also have enough money to maintain continuous shipments of the coal coming in. So when you put this all together, you have a lot of the same factors. And it also makes sense with -- and this has been the history of different private utilities -- they also invest on the supply side. It becomes part of the package: we are providing the transmission, and we also provide the utility.

**Samantha Hancox-Li [00:25:44]**
All right, so I might want to push back a little bit here. You said, okay, well, your power plant needs a continuous supply of fuel, it's very capital intensive. But this is true of a lot of factories. It's very expensive to put together an automobile factory. It assumes a continuous supply of raw materials coming in the back end, but people build them anyway. Private companies build them. There is competition in the car market. What makes electricity markets different than that?

I mean, I've seen some arguments that electricity generation and electricity production aren't actually quite as -- sorry, electricity transmission and electricity production aren't quite as decoupled as the car market might be. So I don't know, what would you say about that?

**Ryan C. Smith [00:26:11]**
No, I think that is a good way of putting it, that these things are a lot more closely linked and connected, along with the costs. Which, as you point out, that's not unique to utilities, and many other businesses do also face significant capital-intensive costs. Again, it goes back to that the distribution is bound up in the product.

In the way that, say, to turn to the example of a car factory -- you manufacture your car, and the car is a discrete unit that can now be shipped and moved, etc. Unless you throw in very recent advances in battery technology, you can't sell a bottle of electricity, for lack of a better way to put it. You can't have a tank that goes, "Okay, here's the power plant, and it's producing these discrete units of fungible electricity that is independent from the transmission system." Any more than you can have an internet provider that's disconnected from the broadband and cellular networks that they depend on. You can have your data center sitting over here chugging its data, but if it's not connected into these broader networks, then what are we doing here?

**Samantha Hancox-Li [00:27:57]**
Yeah, I mean, I think this is something that I did not know and I think is fascinating about electricity. The amount of electricity produced and the amount of electricity consumed are being perfectly balanced at every moment, in a way that -- batteries might be changing this -- but you need the exact amount being produced at every single moment. Actually, if you desync too much, even a small fraction, it damages the grid, which is its own weird thing.

So there just isn't -- electricity, at least right now, is not a commodity. You can't store it. You can't bank it. So that might be an argument that you can't really decouple production and transmission in quite the same way. But I do think your line about batteries is interesting. Do you see new battery technology as changing these economic questions?

**Ryan C. Smith [00:28:53]**
I think that's one of the most exciting things that's happening in the developments that we're seeing around renewable energy and solving the challenges that come from those forms of energy generation. And batteries are an especially exciting one, because essentially, with a lot of modern battery technology -- everyone I think by now is familiar with lithium-ion batteries. I mean, they're in your laptop, they're in your smartphone, they might be in your shoes for all I know, depending on what shoes you've got on there.

Those are everywhere, and they're a great example of nice and compact power storage, which is something that is kind of new when we look at things historically. Because historically, if you're talking energy storage, it's barrels of oil, tons of coal. You could actually even do this with hydroelectric dams, where they'll use pump storage -- they pump water out during heavy flood periods and then release them into the generators during slack periods. But these are all forms of energy storage that are dependent on their input. You can't put oil into a coal plant. I mean, it's reductionist, but it works.

Because that's the difference between what we're seeing with battery technology and what it could potentially do. We now have a way of storing and transmitting energy as energy, in a form that is completely fungible between anything that can use electricity, which is a growing list on almost a daily basis these days.

And you also have some other really exciting things, like some new sodium-ion batteries that BYD, the Chinese electric vehicle manufacturer, has been putting into their latest models, which don't charge quite as fast as lithium batteries but are significantly cheaper. They don't require -- I mean, they're based on salt, essentially, which is way easier to get a hold of. And the curve at which they've been able to uptick the speed of charge on these is pretty encouraging, and suggests that the gap between sodium and lithium-ion batteries may soon narrow enough that they're an effective replacement.

Just imagine: we can get energy storage just out of salt, instead of needing as much in the way of -- and you also need other rare earths and stuff for the cathodes and what have you. But just imagining what this suggests for society: that we will have a fully fungible form of energy, something that can meet all of our energy needs, and it's something that's storable, transmittable, and movable in a way that has never been true of any other energy source in human history.

**Samantha Hancox-Li [00:30:39]**
Yeah, so that is very interesting. The future -- there's a reason that people these days are very excited about battery technology, and so maybe that will reshape the needed political-economic structure of utilities in the future. I can't really answer that right now.

What I want to ask you is kind of a different question, which is: we started with some examples of public utilities, right? In Nebraska, there's the Omaha municipal power district -- I might be getting the name wrong. There are examples of public utilities that run pretty well. There are also examples of publicly owned services that don't necessarily run very well. I've taken Amtrak many times. I like the train. I like taking the train. I believe in these kinds of transportation technologies. I would not really count Amtrak as a particularly well-run service. I often find that the service is unreliable, that it's very slow, that it's expensive compared to the alternatives.

So I don't always see public ownership as magic, in a way. There are examples where you can have public ownership of something and you wind up with something kind of inefficient. So my question for you is, how do you avoid that problem? How do you make sure that publicly owned utilities are reliable, cheap, effective, etc.?

**Ryan C. Smith [00:33:31]**
I think that question around -- and I completely share all of your criticisms of Amtrak. Nothing better sums it up than that once I took a trip up to an environmental conference in Olympia from San Francisco and decided to take the train. It took something like 22 hours one way. And to cover a similar distance in Europe, which is from Amsterdam to Berlin, took about five and cost a third as much.

But I think that actually even that particular example gives good beginnings of an answer to that -- what is and is not effective when we're talking about public utilities. Frequently, when you're seeing public utilities that are less effective in delivering on what it is they're supposed to be doing, it's usually because they're dealing with limited funding, in the sense of not having the funding they actually need to really be able to effectively do their job. Or there's certain kinds of mismanagement or other existing regulatory barriers.

For example, with Amtrak, one thing that significantly impacts their travel times is that they are required to give right of way to freight lines, and freight moves at a significantly lower speed than passenger trains. And rail infrastructure in the United States also does not have the capacity to effectively accommodate the kind of passenger and freight traffic at scale that you see in, say, Germany, for example.

So that's one particular example that I think speaks well to that. When you're having these public utilities that are not being run effectively or functionally, frequently it comes back to that they're being made to do a job with less resources than they have to go around, and there's not sufficient serious upfront investment being put into them.

You could argue that that's been going on with the post office for years, where you'll frequently see headlines talking about, "Oh, the Postal Service is losing all this money," or "The Postal Service was supposed to break even, but now they're losing money again." It's like, this is a public service. The post office is in the Constitution. The Founding Fathers said we should have a postal service, because they recognized having a public service for moving mail was beneficial to the health of a democratic republic, and for doing business and business operations at scale. And moving that cost to something that was federally funded was worth it -- it's like building roads, it's like investing in other forms of infrastructure. And it's the same thing: if you're driving down the road and you keep hitting potholes, it's probably because the road maintenance budget's been cut again.

**Samantha Hancox-Li [00:36:17]**
Yeah, so I'm curious about that answer. Because one of the criticisms that you make of PG&E is that they have substantially underinvested in essential infrastructure. That's why they keep on starting all these fires -- because they haven't updated their transmission lines for 50 years, 70 years, whatever it is. Whereas a publicly owned company can probably borrow at substantially better rates -- municipal bonds, they're pretty reliable -- you can have cheaper financing for that reason, one would argue, and therefore we can have greater investment in these public utilities.

But we don't always see that, right? As in the examples that you gave, whether it's roads or it's Amtrak or some of the mass transit services in this country, we don't always see the public investing in this kind of public infrastructure. How do you think publicly owned utilities can avoid that problem?

**Ryan C. Smith [00:37:29]**
I think it has to start from that a lot of the problems we see around the handling of these public utilities is we're talking about them too much like businesses and not enough like infrastructure. Like that example of the post office -- treating it like a business that's failing when that's not what it is, that's not the point. The point is to be effectively providing this service.

And I think a lot of these problems around how the public talks about these issues, around how then elected officials pursue different policies, or how different lobbying groups and such present their positions -- when we're talking about these public utilities as businesses, we're fundamentally misunderstanding what it is they're about. Because a business approaches these questions of investment and modernization based on very different metrics than a public utility. And a public utility has to think differently in terms of its financing -- there's going to be a lot more need for significant upfront investment, and there has to be a lot of sustained build-out of service during the time when you're either ramping up or upgrading existing services.

There's a lot of interesting studies that have been done on public transportation, for example, that show that if you want to increase ridership on a public transportation system, you have to increase its reliability, and you have to make it more accessible. And the only ways you can do that is by building up capacity in excess of whatever it is that the market would bear. You have to make an investment that goes beyond what would make sense as a business, because a business is going to say, "Well, what can the market bear? How much can I grow within this different area of activity that is still going to be profitable, if not now, then in the mid to long term?"

A public utility shouldn't be thinking that way. And also, when we treat them in terms of fiscal management and support like businesses -- of expecting them to have to show returns off of investment -- that is not sufficient to do that sort of excess capacity. We're going to get substandard results. And I think that's where we have to start -- these things are infrastructure. They're necessary for making society function.

**Samantha Hancox-Li [00:39:53]**
So this is a problem that I can kind of see both sides of, right? Where you kind of want to avoid a situation where we don't have enough infrastructure, or where we underinvest in infrastructure, and therefore our infrastructure becomes old, it causes disasters, it doesn't deliver very good service.

On the other hand, it's possible to overspend on infrastructure. Just take a trip through China, especially rural China or certain parts of China, and you can see -- yeah, the government subsidizes the production of concrete, the production of roads, the production of bridges. You have these beautiful bridges, right? The longest, highest bridge in the world ever built, and it's used by 100 people a day. And that's, in a fundamental way, a waste of money. The government of China spent an enormous amount of money building this bridge that they could have spent -- that the people of China could have spent on something else.

And so I see on the other hand that other side of it. If you're a public utility and you don't care about costs, how do we avoid budget overruns? How do we reach that happy medium where we are spending the right amount of money on this important infrastructure?

**Ryan C. Smith [00:41:18]**
Well, I think that, of the two, people working in the United States have a better foundation for ensuring a kind of built-in accountability and transparency than, say, is the case in the People's Republic of China, as a starting point. When we point to examples -- and I'm also talking particularly about the folks that always go, "Well, you're going to recreate Soviet Russia," or something like that. It's like, well, Soviet Russia was also an authoritarian police state. Knock on wood, we're not there yet.

But that's a very different environment, and that runs into the problems that you see with not just dictatorships, but also, interestingly enough, within the free market -- cases where particular companies are run in ways that are extremely top-heavy and top-down and not receptive to receiving information from the bottom. These are not just problems of dictatorship; they're also problems of when you have these kind of bad information feedback loops, which absolutely also happen in the private sector -- see PG&E. You're going to have non-responsive institutions, you're going to have those budget overruns, mismanaged spending, and mistakes made.

Whereas if you have measures that ensure transparency and public ownership -- for example, rural electricity cooperatives are directly, to varying extents, run by a democratically elected board of the people that are the end consumers of the electricity. So that way you have that direct link between "I am the one who's receiving the service" and "I am having direct input on how the service is being managed."

You could also, if you wanted to do something really experimental, look at things like the German system of co-determination, where on certain companies -- and German corporations seem to all be doing quite nicely -- half of the board is elected directly by the labor unions representing the people that are working there. And if you did something like that with a utility, then you'd effectively have a balance between here's these people that are elected by the community, like the San Francisco Public Utility District or something like that, and then the other half are people that are elected by the folks who are actually working with the technology and the equipment, and are saying, "Okay, that sounds nice. However, we observed these gas lines need to be overhauled. So can we put some money in that direction?"

Having that kind of transparency and sort of above-board accountability, I think, is how you effectively fight that. And we've already got a pretty solid culture of that within the United States. It could be made more accessible and more transparent and easier to interact with, but the bones of it are already there.

**Samantha Hancox-Li [00:43:27]**
I really like that point about responsive institutions. They have to respond to information about the world, about the real costs of what they're doing and the real benefits of what they're doing. And you can achieve this in different ways. There are market forms of accountability, there are political forms of accountability, there are other forms of accountability. But these are the big ones, and it's really just about how do you design institutional structures and marry them to the kinds of economic and political realities that we're living with to generate those kinds of responsive institutions.

So I guess my question for you would be, if you were about to secede from PG&E and you were going to establish the San Francisco Department of Power, how would you design that institution to remain accountable and responsive?

**Ryan C. Smith [00:45:22]**
What I would do is I would look to other examples of public utility districts, like there's been a recent wave of those being set up in the state of Washington that have directly elected boards.

And I think what would work well in the case of San Francisco, particularly because of the recent experience of the PG&E Christmas blackouts, is that you would have a board that is elected from geographically defined districts, so that equality of delivery of service across the city is being ensured. And this would be a body that would have to go through all the usual California public meeting stuff.

And also, critically -- because this is a thing that is not always consistent when we're talking in California about the remuneration of the people that run these boards -- that this would actually be something that draws a full-time salary. Because that is a thing -- for example, the board of San Francisco City College is actually only a part-time position in terms of pay, even though they're the Board of Trustees for the largest community college in the state of California. I think that causes problems there.

And so you want to make sure that the people that are running this, that this is something they can actually dedicate the level of attention and time that they need. And that they would also be informed by advisory bodies that are elected by the people that actually work in the utility district, for providing technical knowledge, expertise, and also just making sure the working conditions are something that is acceptable and safe for what it is that they're doing. I mean, this is work that's essential and also, importantly, well paid, so you can actually afford to live in San Francisco.

Because there's also a lot of other interesting stuff in behavioral economics that once you compensate people at a level that they feel comfortable and secure, they become much more effective in whatever their work is, because they're not spending significant chunks of brain space on, "How am I going to balance my checkbook this month?" Or, "Oh no, I made that mistake at work, how is that going to impact whether or not I'm going to be able to make rent?" And also, it encourages people to sign up if they're like, "Oh, there's a well-paying position that's going to be around for a long time." All those things, so that you have people that are well motivated, that there's transparency, that there's no incentives to underperform, and lots of incentive to show up and be good at your job.

**Samantha Hancox-Li [00:48:17]**
Right. No, that's something I totally agree with. I mean, paying politicians is a tremendously unpopular position in America. People are like, "Oh, these fat cats, we can't pay them any more money." But yeah, when you make it so you're not going to get paid to be a member of Congress or whatever, you're not going to get more working-class people in Congress that way. You're going to get people who can afford to not do anything, to not work for a substantial fraction of the year. I mean, it's very straightforward logic.

And I think your point about pay for public servants is likewise true. If you want to attract talent, if you want to attract people who are good at the job, who are motivated to do the job well, then you need to pay them. I think you also occasionally need to relieve them of command, which is a fancy way of saying demote or fire people who are not performing. I think you need to have both of those aspects of the system.

But now we're getting a little bit far afield -- stuff that I think is very important, but not necessarily the core questions of public power. I guess I've raised a bunch of quibbles here and there about public power. I want to ask you, what do you think is the biggest worry for you, or the biggest risk, with public utilities?

**Ryan C. Smith [00:49:22]**
I think the biggest potential risk facing public utilities is dealing with the cost of existing infrastructure. Because that is a big part of why energy transition generally is such a thorny question -- we're dealing with a massive societal case of path dependency. Which is essentially: we have invested all these resources and time and material into this particular way of doing things, so that means the cost of moving to something else is multiplied by the fact that we now also have to handle transitioning away from this system as it currently exists.

And when it comes to utilities, the standards and level of quality that exist at different investor-owned utilities across the United States varies considerably. The way that they are managed is often artifacts of the times in which they were established and the circumstances under which they were built -- PG&E being a great example of that. And in many cases, these are companies that do date back to the time of Thomas Edison.

So there is a lot in the way of existing infrastructural baggage, existing material baggage, institutional baggage, that if it's not effectively dealt with, could bog down any attempt to do effective transition in terms of utility management. If, for example, California took over PG&E tomorrow but did not meaningfully address the problems that exist within the management culture, or approach the question of outdated infrastructure, or maintaining utility plants that were built for fossil-fuel-based production -- thankfully, California did just close one of our last coal plants recently, if I'm remembering right. But still, you have old natural gas infrastructure and stuff like that that has to be dealt with.

And just striking that balance of: how do we deal with the stuff that is actually kind of expensive and does provide a necessary service now, which is not sustainable -- not just from an environmental standpoint, but just from an economic standpoint? This old infrastructure does not compete with the cost savings or the falling cost of renewable energy, just from an economic standpoint alone, or from a reliability standpoint.

And that sort of is the big challenge, I think, that would face any aspiring public utility -- they have to deal with up to a century or more of old existing infrastructure that is in varying states of repair and disrepair, and uses a significant variety in terms of how things are managed. And that by itself is a pretty daunting challenge. That's why I'm not totally dismissive of the position of folks like Newsom -- they're not wanting to wake the dog. Well, that is a pretty gnarly dog if you're talking PG&E.

**Samantha Hancox-Li [00:53:09]**
Yeah, I think that's right. But it also strikes me that this is fundamentally going to be a problem for all of us, whether it's public or private. What do we do about old coal infrastructure? It's out there on the other side of the hills, and it's becoming uneconomical. And whether the public owns it or a private entity owns it, we're going to have to deal with that kind of transition.

All right. Well, this has been a fascinating conversation. Do you have any last words for our viewers about public energy, anything I forgot to ask you, anything you want to say here?

**Ryan C. Smith [00:53:47]**
I think just the biggest thing is that I think we need to start thinking about these different essential services that we almost take for granted for making modern life possible as these kind of shared goods, and start treating them as part of our shared heritage and our shared benefit. Because I think that when we start thinking a bit more that way, we then have the tools we need to build a floor that everyone can stand on, and that supports a much more free and equal society. I mean, how can we have democracy at the ballot box if we have to deal with oligarchy and monopoly at the fuse box?

**Samantha Hancox-Li [00:54:34]**
And with that, thank you all for listening, and I will see you next week.