Rising costs mean more money for PG&E
| Saturday, May 29 2010 05:00 PM
Last Updated Saturday, May 29 2010 05:00 PM
A CLOSER LOOK
This report is part of a series of stories looking at why Bakersfield residents pay so much for electricity.
WHAT IS PG&E?
Pacific Gas and Electric Co. is one of the nation's largest utilities providing both electric and natural gas service. Based in San Francisco and incorporated in 1905, PG&E transmits and delivers energy to about 15 million people across Central and Northern California.
PG&E owns and operates power plants, but it also buys energy from others on behalf of its customers, including residential, commercial, industrial and agricultural energy users. Its network contains 18,650 miles of transmission lines, 141,213 miles of electricity distribution lines, 42,142 miles of distribution pipelines, 6,438 miles of backbone and local transmission pipelines and three natural gas storage facilities. Some 20,000 people work for PG&E.
PG&E filed for bankruptcy as a result of California's 2000-01 energy crisis. The bankruptcy case was resolved in 2004.
The utility is investor-owned, a subsidiary of the publicly traded holding company PG&E Corp., which trades on the New York Stock Exchange under the symbol PCG. Peter A. Darbee is the corporation's chairman, CEO, president and executive committee chairman. In 2009 he received total compensation of $10.6 million, according to Forbes.
Last year, the holding company earned $1.2 billion, an increase of 3 percent over the year before, on revenues of $13.4 billion. Its profit margin has grown from 7.6 percent in 2007 to 8.2 percent in 2008 to 9.2 percent last year.
The holding company's market capitalization is $15.3 billion. Its shares trade in the $40 to $45 range, up from about $35 five years ago.
The utility's consumer service line is 800-743-5000.
Sources: PG&E, Yahoo Finance
WHAT IS THE CPUC?
The five-member California Public Utilities Commission is Pacific Gas and Electric Co.'s primary regulator and the entity most directly involved with reviewing and approving PG&E's requests to raise its rates. The commission does this as part of its mandate to regulate privately owned electric, natural gas, telecommunications, water, railroad and passenger transportation companies.
Based in San Francisco, the commission is responsible for ensuring the safe and reliable delivery of energy at reasonable rates, increasing the use of renewable energy and promoting energy efficiency. It helps oversee the delivery of $23.7 billion a year in electricity to 11.5 million customers. Another 10.7 million customers spend $7.7 billion on natural gas service within the commission's purview.
The commission's staff includes economists, engineers, administrative law judges, accountants, lawyers and safety and transportation specialists. Among its 13 divisions is the Division of Ratepayer Advocates, assigned to represent consumers in proceedings, workshops and other forums with "significant dollar impacts on consumers that address issues of consumer protection, development of fair rules for competition or other significant policy issues."
Originally set up to regulate railroads, the commission was established in 1911. Its authority was expanded a year later to include electric, natural gas and other services. It did not take on its present name until 1946.
Commissioners are appointed to staggered six-year terms by the state governor. The existing commissioners are President Michael R. Peevey, John A. Bohn, Dian M. Grueneich, Nancy E. Ryan and Timothy Alan Simon. Paul Clanon serves as the commission's executive director.
The commission's general line is 415-703-2782, or toll-free, 800-848-5580. It also has a call center (800-649-7570) to answer questions and help resolve disputes about utility services and bills.
Source: CPUC
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Selling more electricity does not bring in more money for Pacific Gas and Electric Co. But investing in its transmission and delivery system does.
PG&E also earns money by keeping certain costs below the level approved by the state Public Utilities Commission, and by meeting various policy goals set by commissioners.
Underlying this whole structure is the idea is that rates paid by customers should be, for the most part, a "pass-through" of PG&E's costs.
So the question arises: How much more money should the company spend to keep its system safe and reliable for customers?
To find an answer, a long and involved process has kicked off across the company's territory, including a stop in Bakersfield last week. And not surprisingly, customers and consumer advocates have responded with skepticism -- not just of PG&E, but also of the commission's regulatory oversight.
PG&E says it needs to boost its spending by $4.2 billion, or 30 percent, over the next three years to pay for infrastructure maintenance. Under that scenario, PG&E expects that the amount it would keep -- its state-authorized return on investment -- would rise by about 15 percent to a little more than $1 billion in 2011 alone.
The company says customer rates would rise less steeply. If PG&E's plan is approved as proposed, overall residential rates would rise by almost 9 percent for electric customers starting Jan. 1, and natural gas residential customers' rates would increase by about 6 percent. Smaller rate increases would go into effect in 2012 and 2013; the company said actual rate changes are hard to predict accurately because of variances in actual conditions.
Already PG&E's residential electricity rates are well above the national average. That's partly because California utilities face higher costs from renewable energy and efficiency mandates, as well as generally higher labor costs.
PG&E's rates are generally in line with the state's other investor-owned utilities. Last year, PG&E's average residential electric rate was about 16 cents per kilowatt hours, roughly the same as Southern California Edison. At San Diego Gas & Electric the rate was higher, about 18 cents per kilowatt hours.
'Bloated' utilities?
Some say PG&E shouldn't get all it's asking for. The Division of Ratepayer Advocates, a division of the state commission, recommends slashing PG&E's request by more than three-quarters, to about $1 billion over three years.
At two hearings Thursday in Bakersfield to consider PG&E's proposed revenue increase, many who showed up called on the state commission to take a hard line with PG&E.
"I hope the utilities commission will ... stop saying 'yes' to (PG&E). It's about time," Bakersfield resident Robert Campbell said.
Seen one way, PG&E is simply doing its job as a subsidiary of a publicly traded corporation: It's making as much money as it can for shareholders. So suggests Bob Finkelstein, legal director at The Utility Reform Network, a consumer advocacy organization based in San Francisco.
He argues that any blame for high rates should go to the utilities commission, the regulatory body responsible for approving rate increases for the state's investor-owned utilities.
"The California utilities have grown bloated in recent years, as evidenced by huge 'administrative and general' costs that get layered onto everything else, with none of those costs going directly to providing utility service," Finkelstein wrote in an e-mail last week. "And the reason they've bloated this way is the Commission has allowed it to happen."
He listed three reasons for the commission's failure to "rein in" PG&E's costs: After the 2000-01 California energy crisis, the commission decided that financially strong utilities are in a better position to serve customers; it wants the utility to go along with its "pet projects," such as rooftop solar panels; and it has "embraced the notion" that PG&E's maintenance projects create jobs and help the economy, even at ratepayers' expense.
The president of the commission, Michael Peevey, denied any such bloating, but added, "I guess it's all in the eye of the beholder." He said California utilities employ fewer people than do other utilities around the country.
Utilities need to be financially strong, he said, in order to keep down their costs to borrow money for the work they do.
"Who would want a financially weak utility? That wouldn't make sense," he said.
Peevey rejected the claim that the commission goes easy on PG&E to get its buy-in on pet projects, noting that the state Legislature imposes renewable energy goals. He also said that efficiency programs pushed by the commission, which can result in financial rewards for PG&E, typically reduce costs to customers well beyond their total expense.
He emphasized that PG&E's request may well be reduced through the commission's review process. But at least some of the new costs are probably justified, he said.
"I think we're trying to act in the customers' interest to ensure that (PG&E's power) outage rate goes down significantly," he said. "And to do that, maintenance expenditures have to go up."
PG&E's side
PG&E says its $4.2 billion request, the heart of its three-year "general rate case," matches its costs as a responsible electric and natural gas utility, along with the roughly 12 percent return that the commission allows PG&E to earn on the company's equity investment.
"I think it reflects the costs we feel are necessary to make sure that services we continue to provide are what our customers expect," Tom Bottorff, PG&E's senior vice president of regulatory relations, said in a press briefing Tuesday. "And reliability is probably the key factor."
Critics note that these costs take into account variables such as executive compensation. Bottorff said these expenses are proposed in the context of industry averages and reviewed carefully by the commission.
PG&E sometimes overbills customers for energy, Bottorff explained. California's regulatory system is designed so that the company refunds this money, with interest; it collects interest if it underbills.
The timetable
PG&E initiated the general rate case process with a filing last summer. Here is the schedule going forward, according to the Division of Ratepayer Advocates:
* Statewide public participation hearings continue into next week.
* PG&E files its rebuttals June 4.
* Three weeks of evidentiary hearings begin June 21.
* A month after the hearings end, briefs will be filed, followed by reply briefs.
* A "proposed decision" on the rate increase -- essentially, an official forecast of PG&E's costs -- will be issued by an administrative law judge sometime later this year; simultaneously, an assigned commissioner can opt to file an alternative decision.
* Parties have 20 days to file comments and cite errors; replies are due five days later.
* After some final modifications to the proposed decision, the final decision goes before the commission for a vote. That's expected to happen no later than Dec. 16.
