Regulators race to give PG&E a path to raise rates for wildfire costs

How much money will Pacific Gas and Electric Co. customers pay because of the devastating 2017 wildfires sparked by the utility’s power lines?

Regulators are racing to create the mechanism that will determine the answer, a process that may also be applied to last year’s Camp Fire if lawmakers allow it and the state confirms PG&E’s suspected responsibilityfor the historic blaze.

The California Public Utilities Commission is crafting a new financial “stress test” that PG&E will take before passing costs from the Wine Country wildfires and other 2017 blazes along to its customers in the form of higher rates. Arising from a 2018 law, the test is intended to determine the maximum burden utilities can absorb without jeopardizing their ability to provide “adequate and safe” service.

The utility regulators are moving quickly as wildfire season approaches.

But consumer advocates and even San Francisco officials, who are considering buying PG&E’s local power lines, are resisting. They say commissioners are rushing through a process favorable to PG&E without properly deliberating the potential impacts, and the result could be a bailout for the bankrupt utility.

Regardless, the impact on electric rates will likely be significant. The Utility Reform Network consumer group estimates that, if all of PG&E’s projected $30 billion in liability from 2017 and 2018 wildfires comes to fruition and is imposed on customers, residential bills would rise an average of $300 per year, or $25 each month.

About half that impact could be attributed to the 2017 fires, according to Tom Long, an attorney for the the consumer group. He called the regulatory proceeding “massively important.”

“I’ve never seen a case with stakes as high as this one,” Long said of the commission’s work. “Tens of billions of dollars are on the line. And I’ve never seen a case where the timeline, given those stakes, is so very rushed.”

Regulators agreed to start creating the financial test in January, weeks before PG&E filed for bankruptcy protection, citing its mounting wildfire liabilities.

On March 29, Commission President Michael Picker released a memo outlining the scope and schedule of the process. He said the commission would release a staff proposal for the financial test — which can be applied to all investor-owned utilities in the state — one week later, and it did. Comments on the proposal are due this week.

Picker denied a request from the utility consumer group, the city of San Francisco, the Wild Tree Foundation environmental group and others to schedule a series of public hearings about the financial test.

Terrie Prosper, a spokeswoman for the commission, said in an email that utility regulators set timelines for each of their cases “based on the type of issues we are taking up, and here, we are deciding policy issues with legislative guidance that do not require hearings.” The parties have been able to offer input in other ways, including through written comments.

Regulators are on track to release a proposed decision in late May and will accept comments on that in June ahead of a commissioner vote, according to Prosper.

Paul Patterson, a utilities analyst at Glenrock Associates, said the commission typically takes much longer to craft regulations.

“This is, like, lightning fast” for the utilities commission, Patterson said. “For them to act this quickly on this issue is rather remarkable.”

The commission has made creating the test a top priority because “the issues being decided in this proceeding are critical to California ratepayers and wildfire victims,” Prosper said in an email.

Prosper declined to make Picker available for an interview, citing the open proceeding.

PG&E had pushed to have regulators apply the test to 2017 and 2018 wildfires, but Picker determined the law allows it to be used only for 2017 wildfire costs. Lawmakers will need to pass new legislation in order to expand the test’s applicability to other years, he said in his memo.

Still, the fast timeline outlined by Picker is good news for PG&E, which wanted the commission to make a decision no later than early this summer. In an earlier regulatory filing, PG&E said the “prompt establishment” of a “customer harm threshold” via the financial test was a “key element” of its plan to emerge from bankruptcy protection.

PG&E spokesman James Noonan said in an email that the commission’s regulatory process “provides a component that’s needed for expeditious wildfire claims resolution” and also enables long-term clarity for all utilities in the state.

“Accelerating its consideration, reflecting 2018 wildfire impacts statewide, and providing a clear, specific amount is needed for stability now and as part of a larger solution as we continue to prioritize safe, reliable and affordable energy,” Noonan said in the email.

Some of the company’s critics don’t think the commission should bother now.

April Rose Maurath Sommer, the executive and legal director of Wild Tree Foundation, said “in an ideal world,” regulators would dismiss the proceeding. She thinks the stress test provision was included in 2018 legislation, SB901, to stave off a PG&E bankruptcy, which happened anyway.

“The only reason I can see that the commission is interested in pushing this proceeding so quickly and so aggressively is they consider it their role that they improve the outlook of PG&E for investors,” Maurath Sommer said. “The commission’s role is not to protect PG&E. It’s not to protect the utilities. It’s to protect the ratepayers.”

The author of SB901, state Sen. Bill Dodd, said the test was part of his bill because lawmakers wanted to know PG&E had paid all that it “could possibly contribute” before allowing the utility to finance wildfire costs with bonds its customers would pay off over time.

Dodd said he’s open to letting the stress test apply to 2018, which would allow PG&E to follow the process for liability from the Camp Fire. The inferno killed 85 people and destroyed about 14,000 homes.

“We have a lot of victims that are in harm’s way that, without some sort of action, could get left behind,” Dodd said. “From my vantage point, I think that all should be on the table.”

Commission staff outlined three components of the test in their proposal. The first would look at the maximum amount of additional debt the utility could take on while maintaining an investment-grade credit rating, and the second would examine the amount of excess cash available to the company.

The third and most subjective component of the proposed test would be a “regulatory adjustment” through which commissioners could raise or lower the threshold by 20 percent.

Patterson called the staff proposal a “starting point” that reflects the issues the commission is “trying to wrestle with.”

San Francisco City Attorney Dennis Herrera’s office was critical of the regulatory process overall and PG&E in particular.

“PG&E had the chance to use the stress test. It chose to file bankruptcy instead, where it is once again trying to get a bailout on the backs of ratepayers,” Herrera said in a statement to The Chronicle. “PG&E should not get a second bite at the apple to recover unreasonable costs from ratepayers through the stress test.”

Herrera and Mayor London Breed sent a letter to PG&E’s interim CEO last month telling him that, if the city decides to buy the utility’s local electric distribution lines, it will make a formal offer as part of the bankruptcy proceedings.

The San Francisco Public Utilities Commission is studying the potential purchase at Breed’s request. A report is expected this month.