Do PGE, Edison need higher profits?
It’s time for California to decide
LOS ANGELES – California’s monopoly electric utilities asked state officials to sign off on higher profits earlier this year, saying larger shareholder returns were needed to attract investors who might be scared off by the wildfire liabilities that prompted Pacific Gas & Electric to file for bankruptcy.
Now regulators poised to reject pleas.
In a proposal issued last week, staff at the California Public Utilities Commission called for keeping profit margins the same for PG&E, Southern California Edison and San Diego Gas & Electric. Commission staff noted that lawmakers “substantially mitigated wildfire liability exposure” when they passed Assembly Bill 1054, which could give utility companies access to billions of dollars to help pay for damage from fires ignited by their equipment.
“There are no remaining significant unmitigated risks that warrant investor compensation” through a higher return are those on equity, staff wrote.
The proposed decision also calls for profit margins to remain the same at Southern California Gas, which like SDG&E is a subsidiary of San Diegobased Sempra Energy. The five-member Public Utilities Commission could vote on the staff proposal as soon as Dec. 19.
The commission is supposed to allow shareholder returns no higher than is necessary to attract investment so that utilities have enough money to pay for infrastructure projects, safety upgrades and the growing amounts of climate-friendly energy required by state law.
Ratepayer advocates say California’s investorowned utilities would do fine making less money.
The Edison Electric Institute, an industry trade group, recently reported that in 2018, utility regulators nationwide approved average returns on equity of 9.51%, “the lowest annual average in our 30 years of data.” The industry group attributed the decline in approved profit levels to a “long-term commission decline in interest rates since the early 1980s.”
In California, profit margins would stay level at 10.3% for Southern California Edison, 10.25% for PG&E, 10.2% for SDG&E and 10.05% for Socalgas under the proposal from state regulators.
That means for every dollar the utilities spend building electric or gas infrastructure, they’d be allowed to charge customers an additional 10 cents or so in profits for their shareholders.
The Public
Utilities
Commission’s in-house ratepayer watchdog, the Public Advocates Office, had proposed reducing profit margins to 8.65% for Edison and 8.49% for PG&E, SDG&E and SocalGas. The Utility Reform Network, a San Franciscobased consumer advocacy group, had also asked for lower shareholder returns.
The Utility Reform Network “still believes lower interest rate forecasts and the lower numbers adopted by other states justify lowering CA utility returns below 10%,” spokeswoman Mindy Spatt said in an email.
“We fully expect the utilities to lobby against this proposal and continue their unjustified demands for higher rates,” Spatt said.
The three monopoly electric utilities originally asked for dramatically higher shareholder returns, which could have resulted in monthly electric bill increases of $7.85 for PG&E customers, $12.20 for Edison customers and $5.59 for SDG&E customers.
Utility officials said higher profits were needed to balance out the financial risk posed by wildfires.
PG&E has estimated it could face $30 billion in liabilities from fires sparked by its equipment, including the Camp fire, which killed 85 people and destroyed the town of Paradise. Edison recently estimated its potential liabilities from the Thomas and Woolsey fires and the Montecito mudslide at $4.7 billion.
After the passage of AB 1054, the three utilities substantially lowered their requests. But they still asked for higher profits.
PG&E spokesman Ari Vanrenen said the utility’s proposal “is designed to make sure the company can meet the energy needs of its customers by attracting the critical funding necessary to invest in and increase the safety and reliability of its energy system while helping reduce California’s wildfire risk.”
“We recognize that any increase to customer bills can be challenging, and PG&E is committed to keeping costs as low as possible while meeting our responsibilities to safely serve our customers,” he said in an email.