The Story of: The Pacific Gas and Electric Company

Originally Published: November 21, 2019

For over 100 years now a single company has been supplying nearly all the electricity and gas needs for California.

So given their recent controversy with mass wildfires being linked to their power lines for three year in a row now, I began to wonder how we got into this mess in the first place. So let’s go back in time and learn

The Story of:

The Pacific Gas and Electric Company

The Pacific and Gas Electric Company, of just PG&E for short, has its roots all the way back in the 1850s when ‘manufactured gas’ or ‘fuel gas’ was introduced, in essence, doing exactly what its name suggested, manufacturing gas in a variety of ways.

This gas is manufactured at a plant called a ‘gasworks,’ and many had been built on the east coast by 1852, but the west, especially San Francisco, had lacked them, with only oil lamps being available.

But three brothers who ran a foundry that would later become Union Iron Works had become interested in manufacturing gas.

The three, Peter, James and Michael Donahue, along with Joseph Eastland, an engineer at the foundry, worked together to find out as much as they could on ‘gas making.’

This was successful, as in July of 1852 James applied for a franchise to construct a gasworks and lay pipes and lamps within San Francisco, lighting the city with ‘brilliant gas.’

The common council agreed to the franchise under the condition that the gas be sold yo households at a rate that would make it preferable over any other material.

They agreed and the four would incorporate the San Francisco Gas Company in August of 1852, with $150,000 in authorized capital, which limits how much share capital a company may allocate to shareholders.

With its founding, the Sam Francisco Gas Company became the first gas utility company on the west coast. And its initial company seal had the term ‘Fiat Lux’ on it, which translates to ‘Let there be light” and would later be used by the University of California.

At the time of incorporation, there were eleven stockholders, and the three Donahue brothers had 610 of the 1,500 shares.

The gas works, which began construction in February of 1852, was originally located at what is now 400 Howard St. in San Francisco.

The streets of San Francisco were first lit by gas on the night of February 11, 1854. In celebration of the achievement, the company held a gala at the Oriental Hotel(Which is now the Loews Regency) and gas quickly gained favor among the public.

Within the first year of operation, the company already had over 230 customers, and the next year it doubled to over 560. By 1856, the company had laid over 6 and a half miles of gas pipeline and constructed more than 150 street lamps.

Of course, with this much success, competition is inevitable. These included the short-lived Aubin Gas Company and Citizens Gas Company, both of which would be bought by San Francisco Gas. But one company would persevere, the City Gas Company would be founded in April of 1870 by the Bank of California to compete with SFG and its current monopoly over the industry.

The company would begin operation- and a price war -in 1872 and compete with SFG.

The next year, the Bank of California would consolidate with SFG and the Bank gained partial ownership of the company.

Then, the same year, on April Fools Day of all dates, the San Fransisco Gas Light Company (abbreviated now as SFGLC) would be formed as the merger between SFG, City Gas, and a third company, called Metropolitan Gas.

In Short: The Bank of California made a company to compete with SFG, which it saw as a monopoly. And the next year would make said company larger than it was before.

So I guess they failed?

But they would need not worry about gas for much longer, as in 1879, according to PG&E in 2012 and 1952, San Francisco would be the first city in the United States to receive a central generator for electricity.

Due to this, the company introduced the Argand Lamp, which is a type of oil lamp that increases the brightness and capacity. Though the upgrade was costly and was not made widespread.

Meanwhile, downtown was beginning to adopt electric lighting, with the first electric street lamp in the city being erected in front of town hall in 1888, and further expansion of the electrical grid followed.

The same year a company called the California Electric Light Company built a second generating plant.

Competition was rising, and would only get worse with the introduction of water gas, which proved to be a better illuminator than the gas than SFGLC was using at the time.

The Pacific Gas Improvement company gained the patents to water gas and would become a formidable competitor to SFGLC under the leadership of Albert Miller.

1888 is proving itself to be a very expansive year, as that is when SFGLC would also introduce its own water gas production facility at the Potrero gas works.

The new gas proved successful, leading to a wider spread of inexpensive petroleum, leading the company to later construct a more modern facility focused on water gas and new coal-gas due to the lowering availability of oil.

A competing gas works, the North Beach gas works were constructed in 1891 by the San Francisco Gas Light company and was the largest gas holder in the United States west of Chicago.

A merger company called the San Fransico Gas and Electric Company was formed in 1896 via the merger of the Edison Light and Gas Company and the San Francisco Gas Light Company. (SFGLC)

The merger was fruitful for both sides as the merger eliminated competition and greater savings in operation from joint operations.

As was the case in the 1870s, other companies came up to compete with the new SFGE, but they were all eventually merged into it, but this time the Bank of California didn’t step in and make them larger.

These included the Equitable Gas Light Company, the Independent Electric Light and Power Company, and the Independent Gas and Power Company.

And in 1903, SFGE would purchase its largest competitor, the Pacific Gas improvement company, and two years after that, in 1905, the merger of SFGE and the California Gas and Electric Corporation would turn the company into the Pacific Gas and Electric Company.

The merger was for more than just more power though, as it allowed California Gas access to the San Francisco market, allowing for more capital for improvement. And, more importantly, it allowed SFGE to not only expand its electric grid but also phase out its old steam generators in favor of lower-cost hydroelectric generators.

Though the two companies had merged in 1905 and made an effort to unify their separate gas and electric systems, the two still maintained separate corporate identities until 1911.

As can be expected give nits location, the company was heavily affected during the 1905 San Francisco Earthquake. Their central offices were damaged by the quake and then destroyed entirely in the fire. Only two of the plants for the company’s San Francisco subsidiary survived, both of which being located very far from the city. All other infrastructure within the city was horribly damaged.

Due to their large capital and size, the plants that survived served an important role in the reconstruction of the city. The company was also the only electric or gas provider in the city to survive the earthquake, with all of its competitors unable to rebuild their infrastructure.

The expansion of the company would not be stopped by the earthquake, as in 1906 they purchased the Sacramento Gas and Railway Company and continued to run the railway side of things for many years.

The Sacramento City Street Railway would also come under the PG&E name in 1915, greatly expanding its track and services.

By 1931, the division would run 75 streetcars over 47 miles of track, all of which- of course -being powered by the PG&E hydroelectric plant in Folsom.

The streetcar division was sold to Pacific City Lines, which itself would be taken over by National City Lines, in 1943. Soon enough, much of the system was converted into bus routes and the entire system was abandoned by 1947

The company- soon after it became the PG&E -would make fast work of expanding further into northern California via purchasing existing infrastructure from existing companies. Much of said infrastructure was reservoirs, dams, ditches, and flumes which had been built by mining companies in the Sierras that were no longer viable for that use.

By 1915, the company was the largest utility provider on the Pacific Coast, spanning over 37,000 total square miles over 30 counties, and handled over 26% of all Gas and electric needs in the state.

Via the purchase of large companies such as the California Telephone and Light Company, the Western States Gas and Electric Company and the Sierra and San Francisco Power Company, the last of which being the power provider for the San Francisco streetcars, the company quickly expanded throughout the 1920s.

By the end of 1927, the company had over a million customers and provided the electricity for over 300 communities in Northern California.

In the 1930s, the company would gain many large Californian utility systems from, and I kid you not, ‘The North American Company.’ Great Western Power and San Joaquin Light and Power were purchased from the New York Investment firm via $114 million worth of PG&E common Stock.

The company would gain two smaller companies, Midland Counties Public Service and the Fresno Water company, which was not kept and later sold.

The company did not immediately merge all the property and personnel, as Great Western Power and San Joaquin Light and Power remained very separate from PG&E for many years after the purchase, but the two were eventually merged entirely into PG&E and the company would, as such, serve nearly the entire Northern and Central California market.

In the 1930s, PG&E began to offer natural gas via the longest pipeline in the world, connecting the natural gas field in Texas to northern California and their market.

This was achieved via compressor station and cooling towers every 300 miles. Specifically at Topock, Arizona, the Arizona-California state line, and near Huckley, California.

With the advent of natural gas, the company was able to slowly phase out its polluting gas manufacturing facilities, keeping only a few on standby.

The company still serves natural gas today, serving over 4.2 million customers between Bakersfield and the Oregon Border via 400,000 miles of distribution pipeline and over 6,000 miles of transportation pipeline.

Due to water contamination in Topock and Huckley in the 1950s and 1960s, the cooling towers at their compressor stations were given hexavalent chromium for an anti-rust additive, later being disposed of entirely.

On the year of the companies 100-year anniversary, Charles M. Coleman, an employee of the PG&E publicity department, wrote a book titled “P.G. And E. of California: The Centennial Story of Pacific Gas and Electric Company, 1852–1952.”

The first privately owned nuclear reactor was built, owned and operated by PG&E in 1957. Located in Pleasanton, California the reactor was able to produce 5,000 kilowatts of power, which is enough to power a town of 12,000 residents.

But the company was still making progress in natural gas with their request of permission to ship natural gas from Alberta Canada to California via a pipeline built by Westcoast Transmission Co. and the Alberta and Southern Gas Company on the Canadian side, and a subsidiary of PG&E on the American Side.

The construction would take 14 months and testing of the pipeline would begin in 1961 and the entire line would be completed and dedicated in 1962.

The PG&E would build another nuclear plant in 1968, the Diablo Canyon Nuclear Plant, and open it in 1979. However, due to environmental and construction safety protests, they would have to delay it several years until testing in 1984 and operation in 1985.

While Diablo Canyon was under construction, the company still sought to bring more natural gas from the north into California. This time, they were exploring the possibility of a pipeline running from Alaska. The pipeline would travel via the Mackenzie River Valley and meet with the previous Alberta line.

The pipeline would quickly gain approval from the United States Federal Power Commission as well as the Carter Administration, but would be shelved by the British Columbia Government for ten years over concerns from sever First Nations’ groups, whose land the pipeline would have to travel through, as well as worries concerning the environmental damage potentially caused by the project.

In 1984, David Roe, the great-grandson of the founder of the PG&E, George H. Roe, would publish a book concerning the growing anti-nuclear power movement, Dynamos and Virgins.

He was an Environmentalist and the general counsel of the Environmental Defense Fund’s West Coast division.

He argued against the assumption that, in order to meet the nation’s energy needs, more coal and nuclear power would have to be constructed. His argument was based on an economic analysis “aimed at showing that a shift to energy conservation and alternative energy sources alone could slake the thirst for electricity”.

Moving on to the 1990s, 1997 specifically. For in that year, the PG&E would reorganize itself as a holding company, now named the PG&E Corporation, with two main subsidiaries, both named PG&E. One was a regulated utility business, and the other was a non-regulated energy business.

For whatever reason in the later 1990s, the company had decided to sell off most of its natural gas power plants, only keeping some of them as well as their hydroelectric power plants and the Diablo Valley Nuclear Plant. You see, those natural gas power plants accounted for most of its power generation, hence the number of them. Due to their sale, the company would now have to buy much of their power from outside sources and pay the fluctuating prices of them. All this while still having to charge a fixed rate to end customers.

And to make things worse, most of the electricity they were buying was served by Enron. Who- with help -artificially pushed the price of electricity up, leading to the California electricity crisis in 2000. The crisis actually began on Path 15, a long-distance electric line built by PG&E.

Then, on January 17, 2001, the blackouts began.

In 2001, a drought in the Northwest and California made production of Hydroelectric power decrease and, as such, the PG&E would typically buy power from other dams when theirs couldn’t produce enough energy to power demand. However, due to drought, delays in approval of new power plants and market manipulation that decreased the amount of power that could be generated in state or imported from other states. Couple this with the supper season bringing on more power demand and the blackouts began quickly.

Due to the lack of capacity on PG&E’s side, the company was forced to buy power out of state without long-term contracts. Some suppliers took advantage of the situation and created artificial shortages at higher rates, which wasn’t helped by the existence of Enron, which is a situation in itself.

With the company having to pay exorbitant amounts for electricity, and the CPUC unwilling to adjust the allowable rates, the company began to run out of money.

All of this lead to, of course, the announcement that PG&E (The subsidiary, not the holding company) was going to filed for Chapter 11 bankruptcy on April 6, 2001. While the state attempted to provide the power for the 5.1 million customers that would be affected by the bankruptcy. This, as with PG&E, cost the government a lot of money. The whole situation would end up costing PG&E and the state a combined $85 billion. That being $40 and $45 billion respectively.

Luckily, however, the utility would emerge from bankruptcy in 2004 after paying its hundreds of creditors a total of 0ver $10 billion. As a part of the reorganization, however, the 5.1 million PG&E customers would have to pay extra for electricity due to the debt that the utility is in.

From then until 2017 nothing of much real note would occur.

However, in 2017, the corporate mismanagement of the company that lead to less-than-ideal spending- specifically that the company had reportedly diverted costs for maintenance towards shareholder benefits -a wildfire would break out. And then another in 2018. And some recent ones in 2019.

due to the two first ones, the company would announce on the 14th of January that it intended to file for chapter 11 bankruptcy, mostly due to the costs associated with having caused wildfires two years in a row. While the company was given a 30-day grace period to interest payment before triggering a default on their loans- which expired on the 14th of February -the company instead opted to file for bankruptcy on January 29th.

The company- according to Cbonds -had 32 bonds issued worth an estimated total of over $14 billion. The company expects procedures to take two years and the bondholders have come up with a plan to take the company out of bankruptcy. Though Governor Gavin Newsom has concerns over the new Board’s lack of proper experience with Northern California and that they may not be able to properly run the utility safely, probably after wildfires two years in a row. Though that did not stop the company from announcing a new CEO and management as it worked out the bankruptcy.

The Governor stated on the first of November that he would convene a meeting of the management of the company as well as the wildfire victims after calling upon the company to reach a “consensual resolution” to the bankruptcy case. If an agreement cannot be reached, the state will reportedly not hesitate to step in and restructure the utility.

That’s all I’ve been able to gather as of November 20th.

I will say that I was being facetious when I stated that nothing of note happened between 2004 and 2017, as in 2010 a gas pipeline located in a San Francisco suburb would… malfunction, killing eight residents, injuring 5 dozen more and damaging over 100 houses. You see, a section of pipeline, which was over 50 years old at the point, exploded and caused a Shockwave comparable to a 1.1 magnitude earthquake. This was after they were warned by an inspector of the danger of said pipeline in 2009, but did not take the necessary precautions to prevent anything. The pipeline, built in 1956, did not reach standard even then.

It’s situations like these that make me unsurprised by the three-year wildfire streak right now since the company has had a history of doing this kind of thing.

However, in something of a better ending, the company was fined $300 million, refunded $400 million to customers, payed over $850 in safety improvements (Which is why the fires are all being caused by their power lines) and settled more than $500 million in claims regarding victims of the explosion.

You can go onto the PG&E Wikipedia page to see everything they’ve caused and I’d think that the state would be able to handle their power and gas lines better if given control over them.