How Much Could PG&E’s Rates Rise? What You Need to Know.
Pacific Gas and Electric’s customers were warned about the cost of massive wildfires that it may have sparked. Even before California’s largest utility filed bankruptcy proceedings at the start of the year, lawyers, policymakers and consumer advocates all cautioned that the company’s liabilities in those fires would, one way or another, hit the pocketbooks of its 16 million customers.
We don’t have a full picture yet. We do know PG&E is seeking double-digit rate increases to help reduce the risk of future fires. But there isn’t agreement yet on how much the company will be held financially responsible for the deadly and destructive wildfires in 2017 and 2018. And we don’t know how much of that liability might be passed on.
Just recently, U.S. Bankruptcy Judge Dennis Montali ruled that a jury can decide whether the utility is liable in the Tubbs Fire in Sonoma County, even though investigators pinned the source on private electrical equipment, not PG&E (more on this later).
One thing is sure: Consumers will shoulder a big share of any liabilities. Here’s what we know so far about how much PG&E’s rates could go up.
How Much Does PG&E Charge?
PG&E’s customers are already paying some of the highest electricity rates in the state, if not the country. The utility’s average rate is 20.06 cents per kilowatt hour, compared with an average 16.06 cents statewide and 10.48 cents nationally.
But interestingly, those higher rates are offset by California’s higher efficiency. The state’s average monthly consumption is about 300 kilowatt hours less than the U.S. average, with California’s average monthly electricity bill at $101.49 compared to $111.67 nationwide.
The average residential PG&E customer pays $113.64 a month for electricity and $52.30 for gas, or about $165.94 a month, according to the company.
How Much Have PG&E’s Rates Already Risen?
In the past decade, the utility’s rates have been going up faster than inflation. According to the Public Advocates Office, residential rates have risen 31% between 2009 and 2019 — higher than the consumer price index of 19%.
But PG&E isn’t alone. While Southern California Edison rates largely appear to keep track with inflation at 18%, San Diego Gas & Electric’s have jumped 51% in the past decade. That’s partly because SDG&E’s customers have been installing solar panels at a higher rate, which distorts the average cost because each customer appears to be consuming less electricity.
How Much More Will Customers’ Costs Go Up?
Based on what we know, the average residential PG&E customer could pay nearly $300 more a year in the next three years, or a 15% increase in their monthly bills. This is because the utility is asking permission from state regulators — separately from the bankruptcy proceedings — to increase its revenue in two ways. Most, but not all, of the new revenue would be passed to consumers.
In this scenario, for the average PG&E residential customer using both electricity and gas, the current bill of $165.94 a month would go up to $186.24 in three years.
On top of that, PG&E wants to raise the guaranteed rate of return for capital investments that it gets under California law from 10.25% to 12%. It had sought a return as high as 16% in April. PG&E is arguing that it needs to offer investors bigger profits to offset the financial risks of liability in major wildfires.
This request would add an additional $4.12 a month to the average residential bill. Combined, the increases would be $293 a year.
Can This Really Happen?
Yes, but it depends on state regulators. The California Public Utilities Commission will need to approve both rate increases, and PG&E may not get everything it wants. Already the commission, which oversees investor-owned utilities, is hearing an earful from residents in Santa Rosa and Fresno overwhelmingly opposed to paying more.
The commission is expected to announce a decision next year.
What’s Going on With the Bankruptcy?
The bankruptcy case is proceeding in court in the meantime, but key issues have yet to be resolved. Perhaps the biggest unknown is how much PG&E will be on the hook for past wildfires. PG&E initially stated it could face as much as $30 billion in potential damages from a series of catastrophic wildfires in Northern California in 2017 and 2018. The utility has since lowered that estimate to $17.9 billion.
While the utility has all but accepted liability in the Camp Fire that leveled the northern California town of Paradise, it has been trying to minimize liability in the Tubbs Fire, citing a Cal Fire investigation that blamed private electrical equipment. But the bankruptcy judge ruled that victims can pursue a jury trial.
Fire victims argue that PG&E is at least partly to blame. They’re eager to show jurors a winery’s surveillance video they say is the moment when high-voltage PG&E lines exploded first, near the private power system. Rex Frazier, president of the Personal Insurance Federation of California, which represents insurance companies, said a jury could award victims up to $10 billion.
Is There a Deadline for the Bankruptcy Proceedings?
Yes. Under a new law signed by Gov. Gavin Newsom, PG&E will need to have an exit plan resolved by June 30, 2020, in order to tap special funds for future wildfire damages. PG&E is expected to present a draft of its plan in court next month.
Is There a Bailout?
TBD. Assemblyman Chad Mayes, a Republican from Yucca Valley, has proposed allowing PG&E to sell $20 billion in bonds to pay off past wildfire liabilities. Mayes says PG&E shareholders, not customers or taxpayers, would shoulder the debt. A group of PG&E shareholders created a website to tout the plan.
But a group of bondholders led by Paul Singer, a significant contributor to the Republican Party, has mounted a challenge for control of PG&E. The group has teamed with agriculture and food-processing customers — major commercial customers — to warn that consumers and taxpayers would in fact pay more. Its website is here.
It’s unclear if lawmakers will take up the additional legislation before they adjourn in three weeks.
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