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The California Public Utilities Commission is a relatively obscure agency but has enormous sway over the lives of most Californians, particularly power customers.
The CPUC has five commissioners appointed by the governor who make the decisions, and about 940 staff members who help them. The CPUC regulates privately owned electric, natural gas, telecommunications, water, railroad, rail transit and passenger transportation companies, including Uber and moving companies.
Most Californians get their energy from privately owned gas and power companies but their water from public agencies, which the CPUC does not regulate.
The same is true in San Diego, where nearly everyone is a customer of San Diego Gas & Electric but only two major cities – Coronado and Imperial Beach – are served by a private water company.
Because of that, the biggest cases to San Diegans tend to involve SDG&E or Southern California Gas Company, both of which are owned by San Diego-based Sempra Energy. Right now, there are several cases before the CPUC that could have major impact on the lives, and wallets, of local customers – the most-watched of which is probably SDG&E’s request to raise electric rates by $379 million to reimburse itself for damages it helped cause during the 2007 fires that swept across San Diego County.
The Fire Cases
SDG&E’s request for the $379 million reimbursement is in limbo. CPUC administrative law judges said the commission should reject the payout, but it has yet to vote and has already delayed a vote four times.
The money is what SDG&E wants back after it paid $2.4 billion to settle claims related to the 2007 fires. Why? Investigators have linked SDG&E’s lines and failure to clear vegetation near them to the Witch, Guejito and Rice fires. The California Constitution makes it easy to put power companies on the hook for these damages, meaning the people suing SDG&E were likely to get money from the company even if they couldn’t show the sort of negligence they would have had to show in other sorts of lawsuits. Most of the costs were picked up by SDG&E’s insurance or by Cox Communications, which was also found partially liable. SDG&E has said it will voluntarily eat another $42 million it could have asked ratepayers for.
The CPUC seems to be in a tough spot. If it rejects the damages, the head of SDG&E’s parent company, Sempra, has suggested it will take the agency to court. If the CPUC awards the money to SDG&E, it’ll face enormous criticism for seeming to act in the interest of companies rather than ratepayers – a bad look for an agency that is still caught up in an ongoing scandal involving the San Onofre nuclear plant that showed the CPUC seemed to be acting in the interests of companies rather than ratepayers. The Union-Tribune editorial board, for instance, has said if the CPUC awards money to SDG&E, the agency should be abolished because it would put people’s lives at risk by signaling to SDG&E that it wouldn’t be forced to pay the price for future screw-ups.
The CPUC also has a few other cases related to the fires. SDG&E wants to replace more wooden transmission poles with steel poles, a measure it says will reduce fire risk. Critics have said it’s an unnecessarily costly $420 million project. The company also recently asked the CPUC for $23 million to trim trees around its lines, a measure also meant to reduce the risk of fire and prevent outages.
CPUC cases are known as “proceedings.” Even though almost all CPUC proceedings involve things arcane and highly technical, the exit fee debate is perhaps the most difficult to explain but may have one of the biggest effects on the long-term ability of SDG&E and the state’s two other major energy companies to maintain their regional monopolies.
Cities across California, including San Diego, want to begin buying power from someone other than their local power companies. They want to form what’s known as a community choice aggregator, or CCA. San Diego is looking to form one as part of its anti-climate change policies; the city wants to buy 100 percent renewable energy, while SDG&E wants to keep selling gas-fired power. If the city formed a CCA, people living within city limits would automatically be enrolled and would be buying electricity from the city, not SDG&E.
The catch is that SDG&E has already signed long-term contracts to buy power based on the assumption that its customer base wouldn’t change that much. The CPUC actually mandates some of these long-term contracts. In other words, both the CPUC and SDG&E bet that the company’s monopoly would remain intact.
But what if it doesn’t? What if half the company’s customers go somewhere else, like to a city CCA? The law tries to financially protects SDG&E from this sort of shift. So, the company charges departing customers “exit fees” to reimburse it for that already-purchased power.
The problem is nobody can agree on how to calculate those fees. If the fees are too low, SDG&E won’t be able to cover the deals it made and may simply shift all those costs over to people who don’t have access to a CCA, which in San Diego may end up being people living outside of the county’s environmentally progressive coastal cities.
If the fees are too high, though, it won’t make sense for the city to form a CCA, because customers will be paying for the power the city buys plus the power SDG&E already bought – a potentially burdensomely high rate that would undermine a key element of the environmental movement in California right now.
A lobbying arm of Sempra Energy has urged the city not to make a CCA decision until the CPUC figures out how to set the exit fees.
The Pipeline Safety and Reliability Project
SDG&E wants to build a new 36-inch pipeline to replace an aging 16-inch pipeline that brings gas into the county. The company believes the project would increase the safety and reliability of the region’s natural gas system.
The basic arguments for the project are that regulations meant to prevent pipeline explosions require the 16-inch line to be tested. But those tests alone will cost $120 million. If the tests find major problems, those costs will only increase. SDG&E says it makes more sense to just build a new line and, while it’s at it, make that new line bigger.
Opponents wonder why it makes sense to build a bigger line if the company isn’t sure that the old line is unsafe, and with demand for natural gas likely to wane in California in coming years.
The 2019 General Rate Case
SDG&E is also asking the CPUC to allow the company to raise rates so it can collect $218 million more from gas and electricity customers in 2019 than it expects to collect in 2018.
That would translate to about a $14 increase in the typical residential customer’s bill, about $6 from electrical customers and about $8 from gas customers.
SDG&E COO Caroline Winn said the company needs the money to “continue delivering safe and reliable gas and electric service at reasonable rates and enhance the integrity of our system,” while also complying with new state and federal mandates.
Corrections: An earlier version of this post said SDG&E is asking the CPUC to allow it to raise rates in order to collect $700 million more than it expects in 2018. SoCalGas and SDG&E are asking for a combined $700 million in 2019 from the CPUC, but SDG&E’s share of that is only $218 million.
An earlier version of this post also misidentified Caroline Winn. She is SDG&E’s COO.