Pacific Gas & Electric has been blamed for starting some of California’s most devastating wildfires. Now it is asking state officials for permission to raise electricity rates to pay for safety improvements and to offset the financial risk of more wildfires.
PG&E, working its way through its second bankruptcy in two decades, isn’t alone in its request. The state’s two other investor-owned utilities — Southern California Edison and San Diego Gas and Electric Company — are seeking similar rate increases, saying they need bigger profits to attract investment given their exposure to liability from fire-related damage claims.
A California legal principle holds utilities responsible for damage from wildfires started by their equipment even when the companies were not negligent. In recent years, courts have ordered the state’s power companies to pay billions of dollars in damage to homeowners and businesses. PG&E, the state’s largest utility, estimates that it could be liable for an estimated $30 billion in damage for fires in 2017 and 2018.
But consumer groups say the utilities are trying to shift the cost of their mistakes onto ratepayers. These groups point out that PG&E in particular has been cited by state investigators for not doing enough to trim trees and properly maintain its equipment.
“The utilities are looking for a bailout by another name,” said Mark Toney, executive director of the Utility Reform Network, which represents ratepayers.
PG&E asked regulators to let it earn a 16 percent return on equity starting next year. If the regulators approve that request, the company’s return would be significantly higher than the national average for utilities. That change and a second request to raise rates to pay for equipment upgrades would together increase a $100 monthly electric bill by $22 to $23.
Regulators in California, as in many other states, approve retail electricity rates and establish the profits that utilities can earn based on the companies’ investment in transmission lines, power plants and other equipment. The companies periodically seek changes to rates and their profits, something PG&E and other utilities did this week.
Kevin O’Donnell, founder of Nova Energy Consultants, said the national average return for utilities is about 9.6 percent. “Sixteen percent is clearly very lofty,” he said. “That is well above what other utilities are getting around the country. Personally, I haven’t seen a utility request anything over 11.25 percent.”
Paul Doherty, a spokesman for PG&E, said the utility would be willing to scale back its rate request if California legislators changed state law to make it harder for property owners to seek damages from utilities for wildfires. Without reduced exposure or bigger profits, Mr. Doherty said, many investors would be unwilling to back the company.
“We’re committed to working collaboratively with them,” Mr. Doherty said of state officials. “Obviously, we recognize any increase is a significant impact. The safety of our customers must always be our top priority.”
Downed power lines in Paradise, Calif., during the Camp Fire in November. A spokesman said PG&E would scale back its rate request if state law were changed to make it harder for property owners to seek damages from utilities for wildfires.CreditJim Wilson/The New York Times
California’s wildfires have become more frequent and intense, a trend attributed in part to climate change. Among the disasters weighing on PG&E’s outlook is the Camp Fire last November, the most destructive wildfire in California’s history, which killed 85 people and destroyed the town of Paradise. The company has indicated that the fire started at a 100-year-old transmission tower that was a quarter-century beyond its useful life by PG&E’s own standards.
Before allowing PG&E to earn a bigger profit, said Mr. O’Donnell, the utility consultant, regulators should evaluate other approaches to paying for wildfire damage and the company’s other debts.
“Does PG&E have any other assets that it can use to offset at least part of the liabilities associated with wildfires?” Mr. O’Donnell asked. “I don’t think it’s proper to assign that cost entirely to the ratepayer. There ought to be an equitable sharing. It can start with PG&E disposing of assets.”
For its part, the company said it is making big changes. Since filing for bankruptcy protection in January, PG&E has shaken up its board and replaced its chief executive.
On Monday, to win the support of an activist hedge fund, the company said it would replace one director, Richard Kelly, with Fred Buckman, the former top executive at Consumers Energy, a Michigan utility. PG&E also said it would hire Christopher Hart, a former chairman of the National Transportation Safety Board, as an adviser to its incoming chief executive, Bill Johnson.
BlueMountain Capital, the hedge fund, said on Monday that it would now vote in favor of the directors nominated by the company.
In another victory for PG&E, a federal bankruptcy judge in San Francisco on Tuesday approved its plan to pay an estimated $235 million in bonuses this year to 10,000 nonexecutive employees. The company had argued that it needed to make the payments to retain employees and maintain its operations. Lawyers for wildfire victims had opposed the bonuses, saying the company had made it too easy for employees to qualify.
The hope that California’s lawmakers will find ways to support the company has helped lift PG&E’s stock, which is up more than 50 percent since the end of January. Gov. Gavin Newsom suggested this month that the state could set up two funds that the utilities could tap to pay for wildfire claims. But the governor has not made clear how those funds would work and how much money they would have.
The utility has been working to reduce the likelihood that its equipment would ignite wildfires. The company said it would use part of its requested rate increase to pay for $28 billion in improvements to its gas and electricity networks.
But David Hofmann, a distinguished professor of organizational behavior at the University of North Carolina at Chapel Hill who spoke to regulators last week about PG&E’s culture, said he worried whether the utility would ever be held responsible for its behavior.
“Where’s the accountability for the poor operations and the contributions to the fires?” Mr. Hofmann asked. “If you just look at it, it looks like a scenario where their operations could have been better, and now to fix those operations they just increase the rates. Why is the accountability falling on the ratepayers?”