Support for public ownership of electric utilities is growing in California, where investor-owned utilities are under intense scrutiny for causing deadly wildfires and charging some of the nation’s highest electricity rates. Adding to these challenges, utilities must make significant clean energy investments to achieve the state’s goal of a net zero carbon economy by 2045, while providing affordable and reliable electricity. Proponents of public power argue that the investor-owned utility model conflicts with these social priorities.

In this new paper, we ask the question: what does a public buyout of California's investor-owned utilities buy us in terms of affordability, clean energy, and reliability?

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Investor-owned utilities (IOUs) and publicly-owned utilities (POUs) differ across five key characteristics: internal governance structures; regulatory obligations; financing and rate setting; geography and scale; and political accountability and susceptibility. As private entities accountable to shareholders, IOUs can invest and manage large grids at a price, but they must be effectively regulated to align corporate and public interests. As public entities accountable to local constituencies, POUs can be more responsive to local needs, but are typically smaller and relatively more resource constrained.

Performance gaps between California’s IOUs and POUs reflect these characteristics but are also explained by historical and external factors. While POUs typically outperform IOUs on affordability, IOUs face high costs driven by wildfire mitigation in their larger, more rural service territories. While certain IOUs outperform POUs on clean energy procurement and distributed generation adoption, procurement is complicated by broader market forces, and IOUs’ higher electric rates motivate customers to install rooftop solar. While POUs outperform IOUs on reliability and safety metrics, this is again confounded by the fact that IOUs have larger territories with greater wildfire risk.

Possible policy interventions to improve IOU performance range from full public buyouts to targeted regulatory reforms. While public ownership offers potential benefits, such as lower cost financing and stronger alignment with social goals, it also introduces trade-offs, including transition costs, coordination challenges, and susceptibility to local politics, along with questions about how costs and responsibilities for the IOU’s grid will be equitably divided among smaller POUs. In the near-term, IOU performance could be strengthened by targeted reforms, such as enhanced oversight, rightsized utility returns, and elements of performance-based regulation. Selective public ownership of generation and transmission infrastructure could deliver the benefits of public power more gradually.

Key insights:

• Neither ownership model guarantees success or failure. Each requires competent governance, adequate resources, and sustained political will and informed public engagement. While POUs generally achieve lower rates through their not-for-profit structure, much lower financing costs, and smaller service territories, IOUs are motivated to build and have greater access to capital for clean energy infrastructure investments.
• Some of the main challenges facing California transcend ownership. Whether public or private, utilities must maintain sprawling grids across high-risk territories, fund an equitable clean energy transition, and balance massive infrastructure investments with affordability. Wildfire mitigation costs, aging infrastructure, and climate adaptation needs persist regardless of who owns the assets.
• Political accountability is essential for both models. An effective regulator is the core of the IOU model. While it is easier to pass legislation affecting IOUs, IOUs exert substantial influence at the legislature and in regulatory proceedings. POUs offer greater local accountability but still face susceptibility to capture by well-resourced interests, with fewer resources to counterbalance these interests. Like any democratic institution, unlocking the value of a POU requires a motivated, engaged, and informed public. A fragmented landscape of small POUs would impose significant costs on statewide coordination, while a consolidated POU would sacrifice local responsiveness.
• Transition costs are significant. Public buyouts can consume decades and enormous resources in legal battles. Modern efforts could expect IOUs to mount vigorous resistance through litigation and political campaigns and would need to be well-resourced, motivated, and organized. Resources spent navigating these challenges could otherwise address immediate grid challenges.
• Hybrid and incremental approaches are promising. Targeted interventions, like selective public ownership of generation or transmission infrastructure, strengthened regulatory oversight, rightsized utility profits, and performance-based incentives, could deliver improved outcomes without wholesale transformation. Some of the approaches could also shift power away from IOUs more gradually by building publicly-owned infrastructure and participation pathways.
• Context matters. Utility performance depends as much on the geographic characteristics of service territory, regulatory frameworks (and the regulators themselves), and local and state politics as on ownership structure. Dense urban areas with strong climate commitments may benefit from local POUs, while rural territories might require the capital access and economies of scale that IOUs currently provide.

Neither ownership model offers a panacea for California's electricity woes. Public and private ownership models carry many trade-offs, in addition to the IOU profit motive, due to their individual legal, politic, and economic structures. California should chart a course that maximizes public benefit focusing relentlessly on the outcomes that matter most to its residents and its climate future. Ultimately, the measure of success is not whether utilities are publicly or privately owned, but whether Californians receive safe, reliable, affordable, and clean electricity.

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