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In This List

PG&E utility files for $1B rate increase driven by wildfire-related costs

Essential Energy Insights - September, 2020

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PG&E utility files for $1B rate increase driven by wildfire-related costs

SNL Image

Fires burn near power lines in Sycamore Canyon near West Mountain Drive in Montecito, Calif., during a 2017 wildfire.

Source: AP

More than half of Pacific Gas and Electric Co.'s just-filed, $1 billion-plus rate increase application for 2020 would go to prevent wildfires, reduce risks and improve safety.

That 12.4% revenue increase request for 2020 for gas and electric distribution and generation base revenue requirements combined would include 6.8% for the PG&E Corp. subsidiary's wildfire safety program, 3.2% for liability insurance and 2.4% for core gas and electric operations, according to its rate application. The application asked the California Public Utilities Commission to allow a $1.06 billion increase over currently authorized spending of $8.52 billion for 2019.

The 2020 revenue increase would be followed by further increases of $454 million in 2021 and $486 million in 2022 for a total revenue increase of $4.57 billion over the three-year rate period.

The utility needs more money to meet a substantial increase in the costs of insurance largely due to the increased risk of wildfire and the doctrine of inverse condemnation in which utilities are strictly liable for damage from wildfires when the cause is attributed to utility equipment.

Most of the operations portion of the increase is attributable to capital additions due to Pacific Gas & Electric's, or PG&E's, increased investments in its gas and electric infrastructure and to depreciation and decommissioning. The utility would spend capital investments on replacing aging infrastructure.

SNL Image

California is in the midst of back-to-back record-setting wildfire seasons.
Source: AP

Spending plans are uncertain due to wildfire

However, PG&E said it completed its rate increase needs assessment prior to the Camp Fire, which caused additional financial uncertainty for the company. It warned in its rate application that credit rating downgrades could impact the amount of work the utility can commit to financing and may require a change in the scope of work it proposes to accomplish in the rate case period.

PG&E proposes to spend about $5 billion from 2018 to 2022 to expand its wildfire safety program, according to the application.

The utility said it wants to "harden" wires and utility poles by installing stronger and more resilient poles and power lines across 2,000 miles of high fire-risk areas. The company also would increase efforts to keep power lines clear of branches from an estimated 120 million trees and annually inspect vegetation clearances along 81,000 miles of high-voltage lines.

The utility wants to expand the use of SmartMeter technology to more quickly detect and respond to downed wires. The software is now available on meters in high-risk fire areas, but PG&E said it wants to deploy the detection technology throughout its service area over the next few years.

The utility also said it wants to add 1,300 new weather stations in high fire-risk areas by 2022 to improve forecasting and deploy more than 600 high-definition cameras over the next four years to increase coverage across the highest fire-risk areas from 20% now to more than 90% by 2022.

PG&E said it will coordinate prevention and response efforts by monitoring wildfire risk in real time from its Wildfire Safety Operations Center.

Gas distribution revenue requirements would increase from the $1.96 billion the PUC authorized for 2019 to $2.10 billion in 2020 for a 6.8%, or $134 million, increase.

Overall, the rate proposals would increase a typical residential customer bill by $10.57 per month in 2020, including $8.73 for electric service and $1.84 for gas service, PG&E said in a fact sheet. The rate application defines the typical customer as one that uses 500 kWh of electricity per month and 34 therms of gas for a total current average monthly bill of nearly $166.

PG&E's total electric and gas revenue requirements consist largely of energy procurement and other costs not included in the gas distribution, electric distribution and electric generation revenue requirements presented in the general rate case.

The application does not address revenue requirement changes in the areas of electric transmission, gas transmission and storage, or public purpose or conservation programs, except for allocating common costs, particularly administrative and general expenses that are not directly chargeable to any specific utility function. PG&E said its total adopted revenues in 2019 for both gas and electric operations is $18.184 billion, so this gas and electric rate case application would constitute a 5.8% increase over that total.