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California’s Blackouts Are Part Of A Far Bigger Problem

California’s Blackouts Are Part Of A Far Bigger Problem

California Blackouts

This past weekend, Pacific Gas & Electric had to resume electricity blackouts to 930,000 customers affecting upwards of three million people around San Francisco. Meanwhile, two major wildfires, one of which may have been caused by malfunctioning utility equipment, are burning and evacuations are underway. PG&E has informed customers that power in the affected areas may be out for up to one week.

It would not be overstating the case to talk about an air of crisis or panic in the state. Unfortunately, good ideas to resolve difficult, thorny issues seldom arise in troubled circumstances. And California’s Governor Newsom provides us with a ready case in point.

Yesterday Bloomberg News reported that the California Governor was interested in a takeover of PG&E by Warren Buffett’s Berkshire Hathaway Corp. On its face, it sounds logical in several ways. First, Berkshire already owns utilities serving California, Oregon, Washington, Nevada, Utah. Wyoming and Idaho. PG&E would fit in. Second, Buffet notoriously has told investors to buy when there is “blood on the streets”, that is, where the investment outlook looks bleak and most investors stay away, fearful of principal risk. Presumably, the governor envisages Berkshire purchasing the PG&E’s equity at a steeply discounted price, replacing a considerable portion of the utility’s outstanding long-term debt and appointing new senior management and a new Board of Directors.

There is one difficulty here in viewing Mr. Buffett as a potential financial white knight riding to California’s rescue. The current crisis is caused by an extensive above-ground high voltage transmission network sparking wildfires in an increasingly arid environment. Stated differently, the world that this transmission system was built for no longer exists. This is a profound operational problem.

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