PG&E request for early recovery of $899M from customers troubles ratepayer advocates

Dive Brief:

  • Pacific Gas & Electric (PG&E) is asking the California Public Utilities Commission (CPUC) for permission to recover $899 million from its customers, to cover wildfire mitigation investments, before the regulators actually review and approve the costs — a move that worries some ratepayer advocates, especially due to the economic fallout from the COVID-19 pandemic.
  • The utility in February proposed to increase the typical electric customers’ bill by approximately 5%, beginning in August and continuing through 2021, on an interim basis. PG&E said it would refund the amount to customers if the California Public Utilities Commission (CPUC) determines later that the increases were unreasonable.
  • But ratepayer advocates are concerned about the proposal. Marcel Hawiger, staff attorney with The Utility Reform Network, told Utility Dive that this is the worst time to raise customer rates earlier than usual —​ “people are going to have less income and be financially totally devastated in the next few months, so from a policy [and] any kind of economic perspective, it just makes no sense…”

    Dive Insight:

    The costs PG&E is proposing to recover include investments that were made between 2017 and 2019 in clearing vegetation away from its power lines, upgrading its infrastructure and improving wildfire detection and response. Northern California’s wildfire season begins in June and fires sparked by the utility’s power lines in 2017 and 2018 have led to billions of dollars in liabilities.

    The utility said in its application that it needs to recover $899 million on an interim basis because the CPUC’s usual ratemaking process can take two years or more, at which point the accumulated costs could hit the company’s credit metrics and cost of borrowing. The ask would translate to a $5.70 increase to a typical residential electric customer’s monthly bill for 17 months, beginning in August.

    The utility plans to file a formal application to recover these costs later in the year and if the CPUC eventually decides against allowing it the full amount, PG&E would refund customers along with interest at the three-month commercial paper rate. According to the utility, this procedure could benefit its customers in the long term since it would change financial perceptions of regulatory risk and impact its credit metrics.

    PG&E is hoping to have a final CPUC decision on its proposal by June 25 —​ five days before it is required to exit bankruptcy, under state law, to access California’s newly-created wildfire mitigation fund.

    At a CPUC pre-hearing conference conducted via telephone on Thursday, commission President Marybel Batjer said the review of the application would interact with PG&E’s ongoing Chapter 11 bankruptcy case “because the commission intends to provide a clear regulatory landscape for PG&E to exit bankruptcy.” The fast-approaching June 30 deadline is further complicated by the COVID-19 pandemic, she added.

    “As we move into this next wildfire season, it is in the interest of all parties —​ most importantly ratepayers —​ that PG&E gains access to the wildfire fund,” she continued.

    While PG&E’s proposed schedule is tight, the commission would like to adhere to it as closely as possible, Batjer said, and issue a final decision on the proposal by late June.

    But some stakeholders are concerned about the application and schedule. PG&E’s current scenario doesn’t meet the standards of an “emergency situation” that would warrant raising rates prematurely, April Rose Maurath Sommer, executive and legal director of the Wild Tree Foundation, told Utility Dive.

    “[T]here’s a very high chance that these rates would not be found to be reasonable under the regular application procedure and so this would unjustly enrich PG&E on the backs of ratepayers. Our position is they’re effectively trying to turn ratepayers into a piggy bank and acquiring what would be extremely low-interest loans from ratepayers,” Maurath Sommer told Utility Dive.

    PG&E’s customers already pay some of the highest rates in the country, she added, and despite commitments to refund the costs at a later date, “the harm’s long been done then.”

    A lot has changed since PG&E filed its application in February, Hawiger said. Federal lawmakers have since passed a $2 trillion stimulus bill that he says would hugely benefit PG&E when they file their taxes.

    Historically, it’s quite rare for the commission to grant interim rate relief, according to Hawiger, and it’s usually done due to very unusual circumstances. But PG&E’s request “does not meet any of those requirements. It doesn’t help ratepayers at all and it’s the absolutely worst time to increase customer costs for electricity when in the normal course of business, this should be paid for later,” he said.

    PG&E has implemented a series of billing and service modifications for customers affected by the pandemic, including suspending service disconnections and implementing flexible payment plans, utility spokesperson Lynsey Paulo told Utility Dive in an email.

    “We understand the current crisis is creating uncertainty and economic challenges for our customers and are working with the CPUC and other stakeholders on appropriate measures to help customers through this pandemic. At the same time, we need to continue to conduct critical safety and wildfire risk reduction work on our system and timely recovery of these costs is critical to ensuring on-going funding,” she said.

    In its application, PG&E also asked the CPUC to make a policy determination that in the future, it can adopt a similar cost recovery practice if it records more than $100 million in certain memorandum accounts. Doing so would help the utility promptly recover costs for programs that have been mandated by the commission, reduce the need to turn to expensive financing and smooth customer rates, the utility said.

    However, this would be “a completely new process that totally turns the ratepaying process on its head,” according to Maurath Sommer. Setting up a system that relies on the good faith of a utility that they have recorded reasonable costs in their memorandum account “is a very scary precedent that I think would be a horrible move for the commission,” she said.

    Maurath Sommer is also concerned about the expedited schedule that would be required for the CPUC to have a final decision on PG&E’s proposal out by late June.

    “This is an almost impossible schedule under normal circumstances,” she told CPUC regulators during the pre-hearing conference, “but given the impact that [COVID-19] has had on most people’s ability to work full-time…  it’s really challenging and difficult to see how there’s going to be sufficient ability for parties to meaningfully contribute under this schedule.”