Cali wildfire bailout results in electric rates 70% higher than national average

California’s proposed $26 billion bailout of bankrupt PG&E’s wildfire liability will push the state’s average residential electric rates to 70 percent higher than national average.

California Gov. Gavin Newsom signed a bill on July 18 that supposedly will share equally between Pacific Gas & Electric (PG&E) shareholders and its customer the estimated $21 billion liability for 2017 and 2018 wildfire losses. The deal is also contingent on PG&E and the state’s other two investor-owned utilities, Southern California Edison and San Diego Gas, contribute another $5 billion to cover losses.

According to the latest U.S. Energy Information Agency report, California’s residential electric rates currently average 18.05 cents per kilowatt hour (kwh) versus a national average for the other states of 13.16 cents / kwh. Despite already being 37 percent higher than the national average, the bailout will push rates up to about 22.22 cents / kwh, or almost 70 percent higher than the national average.

PG&E is the seventh largest U.S. electric utility. The company has 106,681 circuit miles of electric distribution lines, 18,466 circuit miles of interconnected transmission lines, and 24,000 employees  to service 5.4 million customer accounts for 16 million residents. 

The State of California has implemented a series of disastrous policies since the 1990s to slash utility profit margins, demand conversion to much more expensive sustainable electricity generation, and shriveled spending money on forest management.

The California Public Utilities Commission slashed investor-owned utilities’ return on shareholder equity from 13 percent in 1990 to about 9.45 percent since 2016. The very low return on equity clearly encouraged PG&E to cut back on maintenance spending. 

California also passed a power deregulation plan in 1998 that gave bureaucrats the authority to purchase wholesale electricity. Rather than paying slightly higher prices for long term fixed-rate electricity generated in the state, the regulators made “cheaper” purchases of short-term electricity from out-of-state producers.

But when short-term rates went up by 500 percent, PG&E suffered a $12 billion loss and was forced into a 2001 bankruptcy that lasted for the next three years. The weakened company has never recovered from the devastating losses from its first bankruptcy.

A recent Wall Street Journal investigation found that PG&E delayed repairs to older transmission lines by ranking the upgrades as low priority compared to other work like substation upgrades, according to a review of federal regulatory filings. The Journal found that PG&E in 2017 identified the need for new steel towers and transmission line repairs to prevent “structure failure resulting [in] conductor on ground causing fire.”

PG&E issued a statement pledging to continue “working with the new California Public Utilities Commission President, the governor, and all stakeholders on shared solutions to California’s ever-growing risk of wildfire,” while “keeping customer rates and bills as low as possible.”

Gov. Newsom’s bailout plan requires San Diego Gas & Electric and Southern California Edison must approve their willingness to participate. The bailout plan also requires PG&E must exit bankruptcy by next June and meet a series of safety requirements, despite providing a long-term funding mechanism for up to $20 billion in repairs.

Although it was assumed the other utilities would participate, Southern California Edison is now requesting that California approve a spike in the return on equity to above 17 percent to "compensate investors for the higher risks associated with uncertain state policies for utility cost recovery and liability resulting from California's devastating wildfires."

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