The power of monopoly and regulatory capture
“We want our customers and their families to know that we are here to help them make smart energy choices and save money whenever possible,” cooed Laurie Giammona, senior VP and chief customer officer of Pacific Gas and Electric, on Wednesday between Christmas and New Year’s, when no one was supposed to pay attention.
It was the propitious day when the beloved utility that distributes gas and electricity in the northern two-thirds of California announced that on January 1st it would jack up its rates.
America’s largest electric utility and the second largest gas utility by number of customers, the utility whose 2010 gas-pipeline explosion in San Bruno, just south of San Francisco, killed 8 people, injured another 66, and burned down 38 homes, the utility that is still digging in its heels after five years since the explosion and is now under investigation by the California Public Utilities Commission because it failed to deliver certain documents, the very same PUC that is being probed by a federal grand jury for potential illegal ties between the regulators and the executives of PG&E in this ballooning corruption scandal … well, this beloved utility now has announced a very special New Year’s resolution.
It will hike natural gas rates for the average residential customer by 4.0% and electricity rates by a stunning 8.5%, for a combined rate increase of 7%, the steepest since 2006.
The average small business is going to get whacked by a combined rate increase of 5.1%.
That’s on top of the 6% rate increase it had successfully inflicted on its customers a year ago.
Rate increases, despite a plunge in the price of natural gas
That plunge started in 2008 and has hit new lows on December 17, when the price of natural gas hit $1.68 per million Btu at the NYMEX, the lowest since March 23, 1999. When adjusted for inflation, it was below the prices tracked by NYMEX going back to 1990. This historic price collapse has been eviscerating the US natural gas industry and its investors [read… Carnage in US Natural Gas as Price Falls off the Chart.]
Much of the power PG&E distributes is generated by natural gas. And all of the natural gas it distributes is, well, the same natural gas whose price has plunged to historic lows.
In fact, in its third quarter financial statement, PG&E admits as much: its cost of electricity over the first nine months of 2015 dropped 8.8% year-over-year, and its cost of natural gas plunged 36%!
The thing is, despite the juicy rate increases imposed at the beginning of 2015, operating revenues have fallen about 1% so far in 2015, as Californians use less energy from their beloved utilities. It’s an existential struggle all utilities face.
However, the company pointed out that the rate increases won’t be used to pay for the fines and penalties associated with the San Bruno pipeline explosion.
Those will largely be covered by the proceeds from a public offering last August of 6.8 million common shares at $51.90 per share. Wells Fargo, the underwriter for the offering, got a bundle of fees. But money is fungible. It’s like water. It flows wherever gravity pulls it, and no one can separate it.
So why the rate increase? The SFGate:
The changes follow a decision by the California Public Utilities Commission in 2014 to let PG&E collect an extra $2.37 billion in revenue from its customers over three years, from the start of 2014 through the end of 2016. The additional money will pay for maintenance and upgrades to PG&E’s sprawling electricity grid and natural gas pipeline network….
What else is PG&E doing with this moolah?
It is paying rich quarterly dividends of $0.455 per common share. With 489 million shares outstanding in the third quarter, dividends for a year would amount to $890 million. So for the three-year period in question (2014-2016), this would amount to, give or take, $2.7 billion, more than enough to pay for the maintenance and upgrades of its system.
If it faced real competition, or a real regulator, PG&E would be forced to pay for maintenance and upgrades with other means than rate increases when its input costs are plunging while it’s paying out a rich dividend.
And how are its customers supposed to deal with the rate increases? PG&E, according to the SFGate, “urged its customers to contact the utility for ways to save energy.” So, turn down the heater, put on another fleece, buy more efficient appliances, and hunt down subsidies for low-income households.
As always, it’s just the beginning.
In September, PG&E asked the Public Utility Commission for another $2.7 billion in revenue increases for the three-year period of 2017-2019. That particular amount of money would be used ostensibly to prepare for natural disasters. Over the same period, it would still pay out $2.7 billion in dividends. The PUC, under federal grand-jury investigation for its cozy ties to PG&E, has not yet voted on this doozie.
Turns out, for utilities, the party is over, again. Read… Dear Electric Utility CEO: Merry Xmas and Cut the Dividend?