California’s investor-owned utilities — San Diego Gas & Electric, Southern California Edison, and Pacific Gas & Electric — already have among the highest rates in the nation. (San Diego Gas & Electric’s are consistently the highest.) Nonetheless, these utilities continuously try to stick ratepayers with even higher rates, often of dubious legality. Management screwups should be charged to shareholders, but, for example, Edison wants to stick ratepayers with major costs of the failure of the San Onofre nuclear plant, even though it was caused by management bungling.
Now they are at it again — possibly with the help of state politicians and the California Public Utilities Commission. Newly-amended bills would permit Pacific Gas & Electric to use state-authorized bonds to settle liability claims from the devastating wine country fires of last year. Those claims could be $10 billion to $15 billion. Buried in the AB33 is the statement that the huge possible liability, and uncertainty over whether the costs can be passed to ratepayers “create an imminent threat to the utility’s financial stability.” The legislation may take a new route in utility regulation: global warming may get some of the blame, even if a utility is found negligent. The bonds’ costs could be passed in part to ratepayers.
Erin Brockovich, made famous in a movie of that name, says “It’s another backdoor deal” for Pacific Gas & Electric, according to the San Francisco Chronicle, which is among several newspapers and other media preparing to battle the proposed legislation.
Wall Streeters are flooding Sacramento for lobbying purposes. Pacific Gas has already eliminated its dividend as its stock dropped. AB33 would be a “clear positive step” that would help shares recover, says Julien Dumoulin-Smith of Bank of America/Merrill Lynch.
Travis Miller of Morningstar explains why many investors are bearish on Pacific Gas stock: “California customer rates that are among the highest in the U.S. make it more difficult for [Pacific Gas] to push through higher rates to increase earnings and enhance shareholder returns.” That’s just our point: rates are so high already that Pacific Gas may not be able to make more rate increases stick.
“We don’t expect many new data points until or at least August 6, when the [State] Senate reconvenes,” says Dumoulin-Smith. Diane Conklin of Ramona’s Mussey Road Grade Alliance says she would not be surprised by a “late August surprise.”
This could wind up to be eerily similar to San Diego Gas & Electric’s experience with utility and regulator duplicity. In 2012, the California Public Utility Commission was to vote on two matters, neither of which had anything to do with the 2007 San Diego fires. But a commissioner pulled a fast one: at the last minute, he changed the wording of the proposal so that the commissioners would vote on whether ratepayers would pick up the tab for uninsured costs of the 2007 fires. Conklin and attorney Mike Aguirre immediately discovered the ruse, and the commission backed down. But as commission former insiders predicted, the commission brought it back up in 2015. Two years later, the commission, under consumer pressure, said SDG&E had to pick up the $379 million of uninsured fire costs.