California wildfires are burning down public utilities
California's public utilities' credit ratings are burning down after regulators determined that about 70 percent of the state is now rated at high or extreme wildfire risk.
California's Democrat-controlled Legislature has mastered the game of deviously nudging public utility regulators to raise fees and surcharges to pay for its progressive environmental initiatives rather than suffering the voter backlash from raising taxes.
California residents, due to abundant hydro resources and being the nation's third largest oil-producer, used to have some of America's lowest retail electricity rates. But residents paid 18.32 cents per kilowatt-hour (/kWh) in 2018, about 47 percent more than the national average of 12.47 cents/kWh. Much of that staggering $14.8-billion-a-year extra cost was siphoned off through environmental mandates and crony spending.
The same is true for California retail gasoline prices that went from some of the lowest U.S. prices to currently the highest price in the nation for a gallon of regular at $3.88, versus a U.S. national average of just $2.77. Of that $1.11 spread, only $0.41 a gallon was due to higher state fuel taxes. About $0.70 a gallon, or $4.9 billion a year, was siphoned off through corporate environmental mandates and more crony spending.
The Democrats' money machine slowed down in January after California's "inverse condemnation" law, which holds public utilities and government agencies financially liable for property damage regardless of determining negligence, forced PG&E into bankruptcy with $45 billion in property damages due to trees falling on overhead power lines during high wind events causing sparking fires in 2017 and 2018.
But as a result of the PG&E bankruptcy, the California Public Utilities Commission that regulates the industry was forced recently to update its Fire Threat Map to now rate 45 percent of the state for "Stage 2 Elevated" wildfire risk and another 15 percent of the state for "Stage 3 Extreme" wildfire risk.
With only the California deserts and Central Valley agricultural areas now rated as "Stage 1 Non-Elevated" for wildfires, Moody's Investor Services has begun reviewing the first tranche of the 14 public utilities it rates in California.
Moody's had already cut its credit rating for PG&E, which serves 17 million California customers, to "D" for default in January. But Moody's advised that the new PUC Threat Map assigns Stage 3 Extreme Fire risk to over 50 percent of PG&E's service areas, or about 25,000 square miles.
The only electric generator to be downgraded so far was Trinity Public Utilities, which plunged from "A2," for high quality and low credit risk; to "Baa1" for moderate credit risk and speculative investment grade. Moody's also lowered the credit outlook for the Los Angeles Department of Water and Power, with $9.32 billion in debt; the much smaller Burbank Electric, with $145 million in debt; and Glendale Electric, with $81 million.
Moody's apparently has not finished reviewing the gigantic Southern California Edison, with $14.6 billion in debt. Together with PG&E, the investor-owned utilities service about 28 million Californians.
Public utilities need to borrow billions of dollars each year to pay for infrastructure improvements and to finance the operations of their businesses. Lower credit ratings by Moody's due to higher default risks associated with wildfire risks will push up borrowing costs for all California utilities.
Both PG&E and Southern California Edison could bury all 30,000 miles of overhead power transmission lines to reduce wildfire risk. But the cost to bury a new 69 kV is about $1.5 million per mile, versus about $285,000 per mile for an overhead transmission line. Such an expense would require huge utility rate increases.
But with California Democrats already jacking up residential utility rates, the nonpartisan California Legislative Analyst Office warned that of the state's 13,996,299 housing units in 2015, about 816,000 had their gas and electric service disconnected for failure to make payment. That was up from 547,000 in 2010 at the height of the Great Recession. The LAO expressed concerns about the health and safety impacts on vulnerable populations from interruption or loss of utility services.