The Last Week Tonight host digs into the profit motives of monopolistic utility companies and the regulators who are unwilling or unable to moderate them
On Last Week Tonight, John Oliver tore into the utility companies that have near-monopolistic control over the US power grid, which set high prices and are prone to scandal. “Just Google your utility company right now and the word ‘scandal’, and chances are they’ve gotten into some major trouble,” he said on Sunday evening. “It’s basically like Googling your local Jimmy John’s and E coli, or the name of your favorite teacher from high school and January 6. You’re not going to like the results that you find.”
Perhaps the deadliest scandal of recent years was Pacific Gas & Electric in California, whose neglect of crumbling infrastructure led to the 2018 Camp fire, the largest wildfire in state history. The company has faced billions of dollars in fines, but continues to operate. “And if you’re thinking, how the fuck is that possible, that is what this story is about,” Oliver explained. “It’s about the incredible amount of power that we give to utilities, how weakly they can be regulated, and the damage they can do.”
The “single most important thing to know” about utilities, he began, is that “for most of us, they’re the only game in town”. The patchwork of companies around the company act essentially as monopolies, dating back to the construction of the US power grid in the early 20th century; the government incentivized companies to participate in such a huge investment by promising a non-competitive environment.
The law imposed some restrictions – companies are supposed to spend the least they can while providing quality, environmentally safe service. “Which sounds great, because it caps their ability to make too much money,” Oliver said. “But, and this is a huge but, there is a carve-out. Because when they build something – a piece of physical infrastructure – they’re allowed to then pass along that cost to you through your bill, plus an additional percentage that they get to keep as profit” that’s usually about 10%. “This creates a clear incentive: the bigger the project, like a power plant, the more profit they make.
“In the best-case scenario, this might mean that utilities are investing in infrastructure that is badly needed,” he continued. “The problem is, they can also be shameless in increasing spending even when it is not needed or on projects that are actively falling apart.”
In theory, a state’s public utility commission is supposed to keep a check on utility companies by signing off on proposals and overseeing the setting of rates. “Unfortunately, many of them are badly outmatched by the utilities that they’re supposed to regulate,” Oliver explained, pointing to Mississippi, where the commission approved a plant by Mississippi Power that was only 10-15% designed. (Costs ballooned from a projected $1.8bn to $7.5bn.)
“The plant was only 10-15% designed, and the commission let it go ahead anyway?” Oliver exclaimed. “That is not how designing complex energy plants should work. That’s not even how designing Lego sets work. That’s why you’ve never seen one called ‘A Little Tree and You Figure Out the Rest’.”
Basically, he recapped, “our utility system largely consists of for-profit companies, with monopolies over an essential service, building as much shit as they possibly can so that they can pass the cost onto you on your electric bill”.
To illustrate, Oliver returned to the example of PG&E. “You can see why Californians hate PG&E so much,” he said. “In just one three-year time span, it was responsible for around 1,500 fires. That’s an average of more than one fire a day. And at that point, PG&E are less a utility and more a fire company that occasionally also delivers power to people’s homes.”
Oliver boiled down the issue to profit incentives: the company makes money through new infrastructure, not maintaining it or the area around it. The worn-down hook that broke and started the Camp fire was 97 years old; others found near it were also on the brink of malfunction from decades of use. “And it’s not like PG&E didn’t have the money to perform basic maintenance,” he added – in the five years before the Camp fire, the company issued $5.1bn in dividends to shareholders.
“Clearly this isn’t a system where you, the customer, are going to be prioritized,” he concluded. “If anything, the model only makes sense if the companies’ shareholders are viewed as the customer and your bills are the product.”
Oliver called for performance-based regulation – incentivizing companies to work in the public interest by investing in maintenance, renewables and energy conservation – and for providing regulators with more support, access to technical expertise and more jurisdiction over the companies they monitor. “At this point, I would usually bring out a mascot that we’ve made for utilities that’s representative of just how terrible and horrifying they are,” he added, “but amazingly, I don’t even need to do that. Because they already made a murderous hell demon almost 100 years ago.”
And with that, he rebooted Reddy Kilowatt, an early 20th-century industry mascot “too good at representing how shitty utility companies are”.