JUICE: Muddy Waters & Rates

30 Apr 2019

While passing through a corner of Nevada along Highway 395 during a drive to the Eastern side of the Sierra I was struck by the differences in the price of gasoline in the Golden and Silver states. Filling up in Nevada April 19, I paid $3.30 a gallon, saving well over a dollar per gallon. Returning home a few days later, I saved more than $2 a gallon buying gas in Nevada as the price in the eastern part of California had soared above $5.50.

I was appalled, and so were others. Gov. Gavin Newsom last week asked the California Energy Commission to investigate the matter, declaring possible “inappropriate industry practices.” Sen. Mark Levine called the gas price hike “a punitive, abusive practice.”

Shortly after returning home, the three investor-owned utilities asked for big increases in their returns on equity, with Pacific Gas & Electric seeking a whopping 56 percent raise. I was appalled. I know this proposed revenue hike is one of many big increases the private utilities seek in various dockets, including to offset their huge wildfire liability. But, there is a breaking point for many ratepayers and it is close at hand.

Utility bill increases have been controversial, including because the power companies are responsible for recent blazes that destroyed towns, utilities continue to resist decentralization of their industry and more people are struggling financially.

In addition, private utility rates in California, like gas prices here, exceed the national average. That is in spite of the fact that California homes overall use less energy because of the milder climate and energy efficiency levels.

Those facts likely won’t stop higher rates on utility returns on equity from being approved by both state and federal energy regulators, partly because of wildfire liability. The resulting utility bill hikes from this and various other increases will surely cause a backlash.

To get a grasp on the pending rate increase impacts on residential ratepayers, I added up a few of the proposals before the California Public Utilities Commission. I also reviewed the CPUC’s most recent annual report on utility costs.  But, I quickly discovered that the cumulative rate impact is a black box.

The commission’s AB 67 report mandates that it reveal annually the “costs to ratepayers of all utility programs and activities currently recovered in retail rates.” However, one needs a PhD and years of experience in utility ratemaking to figure out the bottom line. The lack of transparency is further exacerbated by the fact that residential rate hikes, generally the highest, are combined with all other rate classes, from industrial to agriculture. And there is no cumulative tally.

This raises the important question of how I and other ratepayers, particularly struggling ones, can plan and prepare for higher utility bills.

The report does note that between 2005 and 2017, the utilities’ rate base more than doubled from $23.7 billion to $58.6 billion, a 147 percent increase.” In 2017, the combined revenue requirement for the three utilities was $30.6 billion.

The CPUC’s 2018 AB 67 report, which surely will be well above that, is supposed to be released soon.

Because of the challenges in estimating the revenue hikes on rates, I focused on Pacific Gas & Electric and its handful of proposals to reach deeper into ratepayer pocketbooks.

We are talking billions of dollars more in revenue for PG&E, on top of recently approved increases.

For starters, in 2017, PG&E’s revenue requirement was $12.3 billion for its electric operations alone. That includes the cost of generation, distribution, energy efficiency, low-income programs, bonds and increases for amortization. It does not include federal transmission, which was nearly $2 billion. Also, subsequent to the AB 67 report, the CPUC made a number of adjustments to revenue for PG&E and the other utilities for 2017, including recovery for under collections for power costs that are not included in the report’s final number.

Consider a few of the following increases PG&E hopes will be approved by state energy regulators:

  • A $1.2 billion revenue requirement hike proposed in its return on equity, nearly a 60 percent increase next year. That’s estimated to raise average household electric bills by $7.85 a month, or 7 percent. Residential gas customers’ monthly bills rising are expected to increase by about $4.25, or 7.7 percent;
  • A $1.058 billion increase in its 2020 general rate case filed in December. Average homeowner utility bills would rise another $10.57 per month next year, a 6.4 percent increase, if approved;
  • An additional $1.6 billion in 2017 dollars for its 2018 Nuclear Decommissioning Cost Triennial Proceeding for Diablo Canyon filed in mid-December on top of the more than $3 billion already collected for decommissioning. That is expected to add about another $2 to average monthly utility bills or 2 percent;
  • A $1.59 billion revenue increase for 2019 in its pending gas transmission and storage case. It also seeks $1.725 billion in 2020 and $1.905 billion in 2021. That would raise residential bills by about $1.11 per month and small business bills by $6.65 a month.
  • Finally, a $3 billion request for its legislatively required wildfire mitigation plan pursuant to SB 901.

There are other pending utility revenue and rate increases, and recently approved ones. That includes $3 billion for PG&E’s 2019 power charges. There also are various memorandum accounts that include pots of funds that can be tapped for various purposes, including recovery of costs of disaster and wildfire response and wildfire prevention.

Just how high rates will soar for residences, in particular, because of several billions of dollars in new revenue, is uncertain.  However, it surely will be very significant and it is only going to rise.

Lawmakers should, therefore, require the CPUC to tally up in plain English and make public the cumulative impact of annual revenue requirements and rate increases. Not revealing what is at stake, and whether there are ways to get electricity and gas at lower costs and in safer ways, is punitive and abusive.

Elizabeth McCarthy



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