Your pocket is being picked in an alleged conspiracy between San Diego Gas & Electric and the California Public Utilities Commission, which is supposed to regulate utilities but actually mollycoddles them. This chicanery, spelled out in a lawsuit filed February 6, could cost every SDG&E bill-paying customer more than $350 initially and far more than that later.
Basically, the company and its parent, Sempra Energy, want to shift part of the cost of past and future wildfires to their customers instead of to their shareholders. Consumers would pay fire costs not covered by SDG&E’s insurance. The utility wants customers to pay for costs of the 2007 fires and then indemnify the utility against future costs in excess of insurance coverage.
At a hearing January 11–13 in San Francisco, an SDG&E executive admitted that customers might be required to pay $463.9 million for the uncovered costs of the 2007 fires alone. The utility has 1.3 million rate meters. That comes to $356.85 per customer paying the bill. That sum could go up or down because of a number of variables, including lawsuits, but the point is clear: if the local utility and the utilities commission sneak this one through, SDG&E customers’ bills could soar beyond many people’s ability to pay. A serious fire every few years, for example, could drain many households of savings.
This is not just an accounting adjustment; it is an actual payment, explains Scott Logan, an analyst with the utility commission’s Division of Ratepayer Advocates, which represents consumers. “The utility wants ratepayers to pay the costs,” although the payments might be amortized over several years, he says.
As studies by the California Department of Forestry and Fire Protection (Cal Fire) and the utility commission’s own Consumer Protection and Safety Division have shown, much of the 2007 fire damage was the result of SDG&E’s improper design, construction, and maintenance of power lines. Yet, in desiring to shift the financial burden to its customers, the company implies that the disasters were an unavoidable accident, such as an act of God, like Florida hurricanes. Joseph Mitchell, a fire expert with a PhD in particle physics, points out that the power lines were not built to withstand strong winds, and their clashing ignited the fires. “Ignitions are not an act of God, and you have to have ignition to start a catastrophic fire,” says Mitchell.
His wife, Diane Conklin of the Mussey Grade Road Alliance in Ramona, has requested a public hearing on the matter in San Diego. The commission normally would hold a local hearing on matters affecting rates. At this kind of public-participation gathering, the commission’s administrative law judge and/or the commissioner in charge of the case would hear from aggrieved customers. SDG&E doesn’t want any such hearing until the commission has set up a mechanism for putting the financial burden on ratepayers. Then it would be too late, says Conklin. The commission has not yet ruled.
This is a question of what economists call “moral hazard.” Indemnification begets short-term thinking and carelessness. “The top executives of corporations have a shorter life span in their positions than we as ratepayers have,” she says. If the company gets customers to pay for costs of past and future fires, “the executives will be out to maximize short-term profits and be less likely to put in money and time and effort to keep their systems safe,” she says.
In essence, says Conklin, the alleged cabal of SDG&E and the commission is a microcosm of cancers now weakening the United States economy: the enrichment of stockholders at the expense of consumers; the “too big to fail” mentality; corporate welfare; and the public being shut out of critical decision-making.
In its annual and quarterly reports to the Securities and Exchange Commission, Sempra has been reporting that it expects to get its customers to cough up. In its latest quarterly report, Sempra said, “SDG&E has concluded…that it is probable [italics mine] that it will be permitted to recover from its utility customers substantially all reasonably incurred costs of resolving wildfire claims in excess of its liability insurance coverage.” So confident is the company that it has already chalked up the money as a regulatory asset, even though it hasn’t even formally filed for it.
So why is SDG&E cocksure it can fleece its customers? San Diego attorney Mike Aguirre has done a huge amount of the legal work fighting the utility and the commission. He has tried to find out why this shifting of costs to innocent consumers is “probable.” Aguirre has requested answers from the company and the commission and been stonewalled. The utility won’t testify under oath on grounds of attorney-client privilege, among other things. Tellingly, a commission official said certain statements were made in settlement discussions. “Those communications are protected from disclosure,” said the official.
In August of 2009, San Diego Gas & Electric, along with fellow utilities Pacific Gas & Electric and Southern California Edison, sought to have the commission set up a mechanism for recovering future fire costs not covered by insurance. In a commission filing Monday, Aguirre shows convincingly that in the secret negotiations addressing future fire coverage, SDG&E said it wanted payment for the 2007 disaster for which it was greatly responsible. As a result of those meetings, cloaked in confidentiality agreements, the local utility became convinced it would be permitted to knife its customers, thus sparing shareholders who should properly bear the costs of mismanagement. Just before the January hearings in San Francisco this year, Pacific Gas and Southern California Edison backed out.
On February 6, Aguirre filed a lawsuit against the utilities commission in an attempt to force the regulator to release documents that will show what happened at those meetings. In addition, he would like to see San Francisco law enforcement officials convene a criminal grand jury investigation into the matter. Given weak white-collar law enforcement in San Diego, “It couldn’t happen here,” he says.
Two commissioners, utility press-relations executives, and Michael Shames of San Diego’s Utility Consumers’ Action Network did not respond to questions.
From Sempra's 2010 Annual Report