Econ. Development Rates on Regulators’ Radar

By Published On: May 30, 2013

Whether Pacific Gas & Electric can offer rate discounts of up to 35 percent for major industrial customers in high-unemployment counties is expected to be subject of a California Public Utilities Commission decision this summer. Regulators see the markdowns as a potential economic boost in the long-run. Other investor-owned utilities may also be covered. A 12 percent discount could be offered in other counties. Both the 12 and 35 percent discounts would be available for five years. Commission judge Richard Clark is poised to draft the decision in response to the utility’s proposal to reestablish what’s known as an “economic development rate” to retain and create jobs in California. With 9.0 percent unemployment, the state continues to lag behind the national unemployment rate of 7.5 percent. The trick to structuring the rate, said Division of Ratepayer Advocates program manager Mike Campbell, is to make sure ratepayers are protected against substantial cost-shifting. If rates are reduced too much for one class of customers, it could result in others having to make up for any shortfall required to cover fixed costs. On the other side, helping retain businesses or attract new ones can benefit all ratepayers by spreading fixed costs over a larger number of customers, holding down the overall cost for all. The 35 percent discounted rate for businesses locating or staying in high-unemployment counties is “an essential tool,” according to Fresno mayor Ashley Swearengin, “to promote the location and expansion of target industries.” Fresno and a group of other cities centered in the San Joaquin Valley pushed for the rate proposal. Attorney Stephen Morrison explained that cities and counties would use the rates—along with a package of other incentives—as a way to attract new businesses or keep existing businesses that face closure or moving out of state due to the high cost of operating in California. At an average of 10 cents/kWh, the price of power for industries in California exceeds the national average price for industries of 6.6 cents/kWh. Morrison, who represents the cities in the proceeding at the commission, explained that for energy-intensive industries like food processing or paper production that’s a big difference. PG&E’s proposal would mark an enhancement of the previous economic development rate, which was a flat 12 percent no matter what the unemployment level was in a county. Under the plan, the enhanced 35 percent discount would apply in any county with unemployment 125 percent or more than the statewide average. In the current labor market, any county with a rate of 11.25 percent or higher would be eligible for the 35 percent discount, including counties such as Fresno, Merced, Imperial, totaling 22 in all. There are 58 counties in the state. The Division of Ratepayer Advocates supports the concept of an economic development plan. Division attorney Gregory Heiden wants PG&E shareholders “to step forward and contribute monetarily to funding the economic development rate discounts.” Specifically, DRA wants shareholders, rather than ratepayers, to largely cover any cost shifting that may occur. Morrison maintained the proposal would be revenue neutral. He said that even with the 35 percent discount, the utility’s analysis shows the rate plan would cover its marginal costs within five years for most taking advantage of it and within ten years for everyone. In addition to requiring shareholders to bear risk, the division wants to help limit cost shifting risks by capping eligibility for the discounted rates at 200 MW and phasing down the 35 percent discount after the first year to 10 percent the fifth year. Doing so would result in a total discount of 22 percent over five years. Morrison said cities would like to see some minor modifications to PG&E’s proposal. One is to remove the requirement that companies sign attestations that they could not afford to move into California or to stay open here without the rate. They would have to sign under penalty of perjury. The attorney said the rate generally is offered along with other incentives given by cities and counties as a package and that the municipal governments have a multi-step process they follow to qualify companies for those incentives. He said that should suffice in determining eligibility for the economic development rates. Campbell believes the chief value of the rate discounts will be in helping to retain California businesses, rather than in attracting a lot of new businesses to the state.

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