Stakeholder’ Capitalism in Action

The purpose of the blackouts was to avoid more damage from an aging grid that has not been adequately maintained. In January PG&E filed for chapter 11 bankruptcy to restructure tens of billions of dollars in liabilities, including for wildfire. Democrats, including Gov. Gavin Newsom, are predictably lambasting the company for prioritizing profits over safety. San Jose Mayor Sam Liccardo says he wants to turn it into a nonprofit.

Yet PG&E exemplifies the left’s “stakeholder” model, according to which businesses are accountable not only to their shareholders but also their workers, the environment and local communities and society at large. In practice, that means businesses exist to serve their political overlords.

Utilities are among the most heavily regulated businesses. In California, their rates and return on equity—that is, profits—are set by the California Public Utilities Commission and the Federal Energy Regulatory Commission. Every three years PG&E must submit funding plans to the CPUC, which holds public hearings with “stakeholders,” including customers and activist groups.

The commission and the state Legislature can also dictate energy investments. State law requires utilities to obtain 60% of their power from “renewable” sources by 2030. The commission has also ordered utilities to buy energy from homeowners with solar panels, paying them a higher rate than wholesale power providers get. Last year the commission directed PG&E to install 7,500 electric-car charging stations at apartment buildings and workplaces.

If shareholders want to earn a decent profit, they have to indulge their political masters’ fashionable views on matters such as climate, identity politics and corporate governance. Thus PG&E’s website defines “environmental justice” as “making better business decisions by understanding and considering the potential impacts of our activities and investments on low-income communities and communities of color.”

The utility also proclaims that “diversity and inclusion are integral to how we do business” and “are embedded throughout the lifecycle of our talent management programs.” PG&E boasts a chief diversity officer, a Diversity Council and a Compliance and Public Policy Committee on its board to review its diversity metrics.

PG&E hasn’t kept detailed records on the age or condition of its transmission towers and wires, but it knows that 1.2% of its workforce is American Indian and 0.6% Native Hawaiian or Pacific Islander. All told, 43.9% employees belong to ethnic minorities. The utility also reports the precise demographics of its board and contractors. Five of its 14 directors are female, one is black, and two are Hispanic. “Diverse” suppliers constituted 41.43% of PG&E’s procurement spending last year, which includes contractors owned by “LGBTQ individuals” ($2.5 million) and service-disabled veteran-owned businesses ($322 million).

The Human Rights Campaign gave the utility a 100% rating on its “corporate equality index” from 2003-18. PG&E boasts that it was the first major company in California to oppose Proposition 8, the 2008 initiative against same-sex marriage, and it donates hundreds of thousands of dollars each year to liberal advocacy groups such as Black Women Organized for Political Action, the LGBTQ Victory Fund and the labor-affiliated Building and Protecting a Strong California. In 2018, it contributed $208,000 to Gov. Newsom’s campaign.

While the utility also donates to Republican officeholders and business lobbies, conservative outfits opposing renewable mandates don’t make its donor list. Democrats have blasted PG&E for spending millions on political lobbying, but much of its advocacy has been in support of the state’s climate goals, including consumer electric-car subsidies and fuel-economy mandates.

PG&E last year generated 38.9% of its power from renewable sources, exceeding California’s target of 28%. The proxy advisory firm Institutional Shareholder Services, which reviews corporate governance for institutional investors, gives PG&E its top rating on “stakeholders and society,” “board structure” and “carbon and climate.”

“Stakeholders” were mentioned 13 times in PG&E’s 2018 shareholder report, compared with three times in 2014 and zero in 2011. Yet such stakeholders share much of the blame for the utility’s quagmire. Left-wing activists, especially the environmental group The Utility Reform Network, or TURN, have repeatedly objected to a PG&E proposal to finance grid upgrades by raising rates.

In 2012, PG&E requested a $4.84 billion rate increase over three years that it said was needed to ensure grid reliability—which has become more challenging due to increased renewable generation—and replace aging equipment. TURN urged customers to “speak out against PG&E’s greediest grab yet” at public hearings, and the Public Utilities Commission ultimately approved a $2.4 billion rate increase.

Nobody likes paying more for power, but environmental groups worry that customers might turn against the state’s climate goals if they find out the price they’re paying for green energy mandates. PG&E rates are double the national average and have climbed 41% since 2010—about four times the nationwide rate.

In 2014, PG&E warned in its annual report that “to relieve some of this upward rate pressure, the CPUC could authorize lower revenues than the Utility requested.” Two years later, the commission approved a mere 1% revenue increase, which hasn’t been enough to finance critical grid repairs and upgrades.

Thanks to the utility’s stakeholder model, customers will wind up paying much more for their power—or lack of it.

Ms. Finley is a member of the Journal’s editorial board.