California’s Electric Utilities – Profit Motivated Monopolies with Guaranteed Return on Equity
California’s investors owned utilities (IOUs) like PG&E, SDG&E, and SCE are monopolies that exist for the sole purpose of enriching shareholders by charging captive-audience ratepayers for utilities. The California Public Utilities Commission (CPUC) is tasked with regulating the IOUs to protect the interests of ratepayers who have little or no alternative sources of electricity, gas, water, or telecommunications. In exchange for granting the exclusive right to sell a utility in a given service territory and operate what is usually an illegal business practice in the US (monopolies), the CPUC determines how much and in what each IOU is allowed to invest, how much it can charge, and what its profit margin can be.
The CPUC permits the CA IOUs to profit off of a guaranteed return on equity (ROE), meaning that when an IOU builds something, like a transmission line or substation, it is guaranteed to earn a return on their “investments.” This is the major source of profit for the IOUs and is the major driver for wasteful, unneeded, and environmentally damaging IOU development and “modernization” projects.
California’s IOUs are currently allowed to each earn around 10% return on equity (ROE) which is extraordinarily high given that there is no risk to these “investments,” with guaranteed return paid by ratepayers.
Every three years the IOUs apply to the CPUC to have their ROE set in cost of capital applications. The last electric utility scheduled cost of capital applications were filed in 2019 and the current scheduled applications were filed April 2022. Inevitably, every three years, the IOUs ask for an increase in ROE.
Electric Utilities’ Attempt to Cancel Automatic Rate Decrease
CPUC Proceeding A.20-08-013/14/15 PG&E, SCE, and SDG&E applications to cancel $400+ million rate rate decrease for 2022. In the years between the scheduled cost of capital application years ROE is automatically adjusted up or down based on what happened with interest rates the previous year. During 2021, interest rates dropped and PG&E, SCE, and SDG&E were required, beginning January 1, 2022, to decrease ROE, thus decreasing electricity rates by more than $400 million for 2022 throughout California.
In August 2021, instead of following the legal requirement to decrease ROE and rates, PG&E, SDG&E, and SCE all filed extraordinary applications to have the automatic ROE adjustment canceled based upon claims that the companies were suffering as a result of the COVID-19 pandemic. Following the filing of the applications, all three applicant IOUs broke the law by failing to make required filings to initiate the automatic ROE reduction. None of the electric IOUs’ ability to attract capital or makes investment was measurably harmed by the COVID-19 pandemic and there is absolutely no justification for the cancellation of the automatic rate decrease ratepayers were due for 2022.
- Wild Tree Foundation Protest The CPUC adopted Wild Tree and a collation of ratepayer advocates recommendations that the proceeding should be split into two phases with the first phase posing the foundational question of whether the applicant electric IOUs are permitted under the law to file extraordinary, off-cycle cost of capital applications. Only if it is determined that they can file such applications, would the question of what the ROE for 2022 should be, be reached in the second phase.
- Joint Parties Comment on Proposed Decision Granting Memorandum Accounts Over the objection of Wild Tree and a collation of ratepayer advocates, the CPUC permitted the applicant IOUs to temporarily cancel the ROE decrease, thus depriving ratepayers of over $400 million in savings in 2022. The CPUC has not yet ruled on the IOUs’ requests to permanently cancel the decrease but has stated that the decrease may be reinstated and ratepayers due refunds depending on the outcome of the ongoing proceedings. The CPUC did require all IOUs to file regularly scheduled cost of capital applications in April 2022 despite the requests of the electric IOUs that the schedule be adjusted to be reset based upon the extraordinary applications filed in 2021.
- Wild Tree Foundation Direct Testimony of Aaron Rothschild. Cancellation of the ROE decrease is not justified based upon various measures of investor expectations and of the financial health of the applicant IOUs. The COVID-19 pandemic had an extreme but brief impact on the overall market in March 2020, but the overall market and investors’ expectations of the risk of IOUs have recovered to pre-pandemic levels.
- Opening Brief of Wild Tree Foundation
- Reply Brief of Wild Tree Foundation
Electric and Gas Utilities’ Applications to Increase Already Inflated ROE
CPUC Proceeding A.22-04-008/009/011/012 ratemaking IOU 2023-2026 cost of capital applications. In April 2022, the IOUs filed their annual cost of capital applications requesting large increases in their returns on equity: PG&E is requesting 11.00%, SCE 11.53%, SDG&E 10.55%. Wild Tree has protested the applications and will fight to see the IOU ROE’s decreased, instead of increased.
PG&E’s Dangerous Scheme to Underground 10,000 Miles
CPUC Proceeding A.21-06-021 PG&E General Rate Case. PG&E filed its 2023 test year general rate case June 2021 but it was not until February 2022 that PG&E amended its application to include a request to include costs for 2023-2026 for its $50+ billion, new, 10,000 mile undergrounding plan.
- Wild Tree Foundation Motion for Party Status
- Wild Tree Foundation Direct Testimony of Robin McCollum: PG&E’s plan to increase its underground projects over 1500% over the next three years is not feasible and is not safe. PG&E has proven to be incapable of preventing wildfire ignition and spread and at failing to ramp up vegetation management. It will take PG&E far too long to implement its undergrounding plan and, in the mean time, dangerous bare wire power lines will be left in place with substandard vegetation management and upkeep keeping the public at severe risk of another PG&E-caused catastrophe. Covered conductors are a much more cost effective and expedient wildfire mitigation strategy than undergrounding. PG&E’s request to include its 10,000 mile undergrounding plan in the 2023 test year general rate case should be denied.
PG&E $1.3 Billion Rate Increase
CPUC proceeding A.20-09-019 PG&E application for $1.3+ billion rate increase. The request covers many different costs over many years including wildfire mitigation costs and costs associated with catastrophic event. Wild Tree protests the application on the grounds that some of the costs requested were not reasonably incurred by PG&E and should be born by shareholders, not ratepayers. In particular, Wild Tree objects to $230+ million in costs PG&E claims it incurred for “public safety power shutoffs,” the power outages that resulted when PG&E uni-laterally decided to turn off power to millions throughout Northern California in 2019 during not uncommon high wind events.
- Wild Tree Protest to Application– PG&E should not be able to increase rates to cove costs associated with the 2019 power outages, the January/February 2019 rains, the October 2019 Wind Events, or the Tubbs Fire
- Wild Tree Opening Brief – PG&E’s 2019 power shut offs violated the law, did not prevent the catastrophic Kincade Fire, caused billions of dollars of economic harm, and ratepayer charges for costs of 2019 PSPS program and events would be unjust and unreasonable. PG&E should also not be able to recovery costs from ratepayers for regular and expected rainy or windy weather as “catastrophic events” of for fires for which the cause has not yet been determined.
PG&E, Public Advocates Office, and Federal Executive Agencies agreed September 2021 to settle the entire case by taking 70% off the top of the entire request. Wild Tree Foundation, TURN, and PG&E Ratepayer Thomas Del Monte oppose the settlement. A settlement has to be approved by the CPUC and a proposed decision on the opposed settlement has not yet been issued.
- Wild Tree Foundation Opposition to Proposed Settlement – Approval of a settlement that just lops some arbitrary amount of the top of a multi-year, multi-item request would be unreasonable and unjust. PG&E should not recover any costs for the 2019 power shut offs because it caused a state of emergency by its uni-lateral, widespread, mismanaged shut off that cost lives and billions to California’s economy. The Commissions has already determined that PG&E violated the law and Commission orders when it bungled the preparation, roll-out, and aftermath of power outages for millions of customers. PG&E should also not recovery any costs associated with fires it caused and for which fault has not yet been determined.
PG&E “Stress Test” SB 901 Bailout Application
CPUC proceedings A.20-04-023 and A.21-01-004. Unfortunately in May 2021 the CPUC approved PG&E’s application for a bond for wildfire victim claim costs on even more favorable terms than it requested. Wild Tree has joined TURN and San Francisco in applying for a rehearing of the decision. Wild Tree strenuously objects to PG&E’s plan to profit off of the death and destruction it has caused by causing catastrophic fires in 2015, 2017, and 2018. Despite a past CPUC decision prohibiting PG&E from relying upon SB 901 bond bailout because it filed for bankruptcy, PG&E has applied to have $7.5 billion of wildfire victim claims settlements costs be securitized. This would mean that PG&E would be permitted to issue $7.5 billion in bonds for which ratepayers would see increases in their bills for the next 30 years to pay for interest and financing costs. PG&E’s plan is to “repay” ratepayers from supposed anticipated profits from an investment fund it would provide seed capital to. If this fund has a surplus in 30 years, ratepayers would only get 25% while shareholders would benefit from 75% of any profits thus profiting off of settlement costs. Ratepayers would hold all the risk while shareholders would profit off of PG&E’s felonious prioritization of profits over safety. This would be unconscionable and contrary to PG&E’s bankruptcy reorganization plan, SB 901, AB 1054, and Commission precedent.
- Wild Tree Opening Brief & Reply Brief – PG&E’s application for a ratepayer-backed bond does not meet any of the requirements of CA Public Utilities Code section 451.2 and must be denied.
- CPUC Decision approving stress test application in A.20-04-023
PG&E Rate Increases Disguised as “Interim” Rate Recovery
CPUC Proceeding A.20-02-003. In the midst of the pandemic and associated economic crisis, the Commission approved an interim rate increase thereby increasing rates years sooner than it would have otherwise, even assuming future rate increases were found to be reasonable. The Commission did approve less than half of what PG&E requested but it should all have been denied in full.
PG&E would have had the CPUC approve $900 million in rate increases on an “interim” basis with no review whatsoever, instead just basing the increase on PG&E’s word that it must increase rates beginning August 2020. This would lead to an average rate increase for PG&E residential customer of 5% and 6.8% for CCA customers, just for this one case. Most of the increase would be to recover the cost of vegetation management.
PG&E already convinced the CPUC to order “interim” rate increase in 2019 and has a motion pending in another case for additional “interim” rate increases – all of which is push PG&E and CCA rates higher and higher. PG&E would later apply for approval for the rate increase and claims that there will be no harm to customers because customers will be reimbursed if the CPUC later finds the increase is not reasonable. PG&E has also applied to create a permanent system where every time it claims to have spent $100 million on certain activities such as tree trimming it automatically gets an interim rate increase subject.
- Wild Tree Protest to Application – Wild Tree strenuously objects to PG&E’s application to utilize ratepayers as their personal piggy bank. It would be unconscionable and illegal for the Commission to approve PG&E’s application and increase PG&E electric rates that are already some of the highest in the country with no reasonableness review, no hearings, and no record upon which to base a decision. PG&E would also have the Commission rewrite the basic tenants of ratemaking and permit standardized interim rate increases based solely upon the word of the utility that it has incurred costs that it deems eligible for interim rate increase. Both schemes are illegal and unconscionable and should be denied at the outset. This application is, frankly, a waste of the Commission’s time and should progress no further.
- Wild Tree Foundation Opening Brief & Reply Brief
- CPUC Decision