‘Compromise’ leaves customers paying tab for utility negligence
February 12, 2013
When Toyota or any other automaker is caught placing flawed parts in some of the models it builds, a recall ensues with the car company often paying hundreds of millions of dollars to replace fuel injection systems, floor mats or whatever was wrong.
Of course, there is plenty of competition in the car business, as relative newcomers like Hyundai, Kia, Tesla and others rise up continually to challenge the existing giants, forcing them to keep prices within reach and to respond when they've done something wrong.
But utility companies in California are not like that. They are monopolies. If you live in Southern California Edison territory, you buy power from it, or you install expensive solar panels on your roof. There's no other company equipped to deliver electricity to very many homes or businesses.
The only thing forcing the big utilities to keep rates reasonably affordable is the state Public Utilities Commission, whose mission is to prevent consumer rip-offs with a secondary purpose of making sure companies like Edison, Pacific Gas & Electric, Southern California Gas and San Diego Gas & Electric remain financially strong.
Dunning the customers for two-thirds is, of course, touted by the commission as a compromise. But it’s really the result of a Kabuki dance the PUC and the utilities have performed for decades.
How the PUC lives up to its vital mission depends on who peoples the five-person commission, for which members serve five-year terms. They are appointed by the governor and almost impossible to remove once in office. For most of the last half-century, they've almost always given more emphasis to the need for keeping utilities profitable than their central purpose of preventing utilities from ripping off the captive-audience customers.
The latest example came with little fanfare this winter, when commissioners voted to assess PG&E's customers two-thirds of the estimated $2.2 billion it will cost to upgrade that company's admittedly decrepit gas pipeline system. Federal authorities found PG&E flat-out negligent while investigating the 2010 pipeline blast that killed eight people and destroyed 38 homes in San Bruno.
Inspectors essentially determined that California is lucky similar explosions have not become commonplace. For it's not just PG&E with pipeline troubles, but also SoCal Gas and SDG&E, both owned by San Diego-based Sempra Energy.
If commissioners act as they usually do, the PG&E decision will set the pattern for repairs by those companies, expected to cost SoCal Gas about $2.6 billion and run to about $600 million for SDG&E.
Dunning the customers for two-thirds is, of course, touted by the commission as a compromise. But it's really the result of a Kabuki dance the PUC and the utilities have performed for decades. Each time a utility applies for a rate increase, it gets one that's about 25 percent to 30 percent less than what's requested. So the utilities invariably ask for higher rates than they know they need or can get, generally ending up with less than they ask but more than what's required for them to be profitable. The process is a predictable joke for all involved, even if all parties maintain straight faces through all their convoluted hearings.
So it was, too, with the PG&E pipeline expense. The company at first asked the commission to force its customers to pay 90 percent of the repair costs, then reduced its request to a mere 84 percent.
Of course, for consumers to cover much of the cost is rank injustice. Gas customers have already paid more than $1 billion over the last few decades via monthly billing assessments to assure safety and reliability of pipelines.
But that didn't matter much in the eventual PUC decision. So customers are paying about 88 cents more per month this year and will pay $1.36 more each month starting in 2014 until the work on more than 900 miles of pipeline is complete.
Customers in Southern California can expect the same sort of increases soon.
All this will also guarantee about $400 million in additional profits to the companies each year until 2033. That's because utility profits are based in part on a "reasonable rate of return" on their capital investments, now set at about 11.35 percent. In a spiraling process, customers will pay higher rates for years to come because the utilities are allowed to charge them for repairs caused by the companies' negligence — and their failure to properly use the maintenance money consumers have long been paying.
If all this seems unjust beyond the level of absurdity, it is. But consumers will just have to pay the higher rates, for there's now no apparent way to stop it.
Email Thomas Elias at firstname.lastname@example.org. His book, "The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government's Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, visit http://www.californiafocus.net.