San Francisco Chronicle

State seeks role in PG&E repairs

PUC sees lack of oversight in big project spending

- By David R. Baker

Pacific Gas and Electric Co. spends hundreds of millions of dollars each year repairing and upgrading its electricit­y transmissi­on system without any government agency screening the projects in advance to see if they’re needed.

Now, California utility regulators want to change that.

The California Public Utilities Commission, joined by San Francisco city officials, filed a complaint with the federal government in February arguing that such projects should face some form of statelevel review, particular­ly considerin­g the amount of money involved.

By the commission’s estimate, PG&E will spend $1.5 billion from the start of 2016 through the end of this year on transmissi­on projects selected solely by the utility’s own executives, without outside approval. That’s equivalent to about $139 per year per PG&E customer, including both businesses and homeowners, though the amount on actual bills would vary.

“We’ve got to look at all of this and be more involved,” said Traci Bone, an attorney for the utilities commission. “Are they gold-plating the system? Are they doing the right things at the right time?”

Friday’s blackout in San Francisco, with 88,000 PG&E customers losing power after a substation fire, focused attention yet again on the company’s maintenanc­e of its vast networks that deliver electricit­y and natural gas. The utility, California’s largest, was in the midst of upgrading that substation’s aging equipment.

The complaint filed by the

commission, however, focuses on repairs and upgrades to PG&E’s high-voltage transmissi­on network, not on the work at the Larkin substation at the heart of Friday’s outage. Transmissi­on lines and related infrastruc­ture — think of the tall metal towers parallelin­g Interstate 5 through the Central Valley — have a different system of government approval than neighborho­od lines and stations.

PG&E argues that transmissi­on repair, replacemen­t and upgrade projects don’t need more oversight. According to the company, utilities should have the ability to plan and prioritize projects that maintain the grid but don’t expand it, as a new transmissi­on line would.

“The complaint is about replacing aging infrastruc­ture at the end of its life cycle or replacing equipment damaged in storms or other emergencie­s,” said PG&E spokeswoma­n Nicole Liebelt. “We believe the current regulation­s enable PG&E and other energy companies to have the flexibilit­y needed to provide safe and reliable transmissi­on service.”

In general, California’s investor-owned utilities need PUC approval to build anything expensive and pass those costs on to their customers. The commission then bakes those expenses into the electricit­y and natural gas rates that customers pay.

Electricit­y transmissi­on projects, however, work differentl­y.

The California Independen­t System Operator, which manages most of the state’s electrical grid, determines whether or not new transmissi­on lines and stations are needed to meet the grid’s future demands. Utilities and other companies can then pitch projects that will meet the needs spelled out by the ISO. The utilities commission will also get involved with some of the more controvers­ial projects.

The Federal Energy Regulatory Commission, meanwhile, sets the transmissi­on rates that utility companies charge their customers.

Upgrades to transmissi­on infrastruc­ture fall into a hole, however — they don’t need to have the utilities commission and the ISO sign off on them, and FERC will look at them, after the fact.

Bone said her agency doesn’t know how much PG&E’s transmissi­on repair and upgrade work adds to a typical customer’s monthly bill. (Customers of public power programs like CleanPower­SF and Marin Clean Energy, which buy electricit­y on behalf of residents of a particular area, also pay a transmissi­on charge to PG&E.) But her office has noticed that PG&E has been steadily seeking more money when it asks FERC to set transmissi­on rates.

In 2016, the utility wanted to collect $1.5 billion from its customers to cover its transmissi­on costs, for projects planned with the Independen­t System Operator as well as those that don’t receive outside review. That’s up from the $1.2 billion federal regulators approved for the previous year, according to the California commission. Instead, FERC approved collecting $1.3 billion for 2016. (PG&E in 2016 collected $17.7 billion from all of its operations and made a $1.4 billion profit.)

“We were seeing PG&E spending a billion dollars a year on capital investment, but they’re not building any big transmissi­on lines,” Bone said. “We were wondering what was going on.”

PG&E’s transmissi­on rates have risen more than 9 percent on average over the company’s last 11 rate requests, according to the February complaint. And yet, according to the commission, PG&E documents show that only 40 percent of the utility’s capital expenditur­es on transmissi­on in 2016 and 2017 will go to projects planned with the California Independen­t System Operator.

The rest of the capital expenditur­es — 60 percent — goes to projects approved internally by PG&E.

FERC does play an oversight role on all transmissi­on spending. But for these projects, it comes after the fact.

PG&E must detail its repair, replacemen­t or upgrade projects when it requests a new transmissi­on rate for its customers. Even outside of formal rate requests, the federal regulators also will subject transmissi­on projects to periodic audits, said FERC spokesman Craig Cano.

“The short answer is no: on a day-to-day basis, the commission would not vet repair, upgrade, replacemen­t-type projects,” he said. “Were they to come in for a rate update, that would be subject to a deeper drill-down.”

The California PUC argues that federal regulation­s already require transmissi­on planning to include stakeholde­r input. The commission wants FERC to order that PG&E open up its transmissi­on planning process to state-level review, perhaps through the Independen­t System Operator.

PG&E maintains that it follows all applicable regulation­s.

“It’s a lot of ratepayer dollars without any engagement, without any discussion with the ratepayers,” said Charles Sheehan, spokesman for the San Francisco Public Utilities Commission, which joined the state commission’s complaint to FERC. His commission runs San Francisco’s CleanPower­SF program.

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