A major power utility serving California producers is looking to generate $5 billion in new revenue over the next five years, and ag leaders worry their industry will be forced to bear the brunt of the cost.
According to a recent filing by Pacific Gas and Electric (PG&E), the increase would help the investor-owned utility afford costly new wildfire safety improvements and clean energy investments. But as a result, rates are expected to go up 45% by 2026. Rates are the utility's primary source of revenue.
The added revenue could bump rates to three times the national average Agricultural and commercial customers typically shoulder the bulk of the rate increases.
“We know this is a significant request that comes at a pivotal time when many of our customers are struggling to recover from the pandemic,” said Robert Kenney, PG&E vice president of regulatory and external affairs, in a statement accompanying the filing. “We won’t stop looking for additional ways to manage costs and help customers use less energy and lower their bills.”
PG&E serves about 16 million customers in Central and Northern California, covering 70,000 square miles of service. The company claims about half the requested 18% increase for the first year would be for wildfire reduction work. This includes measures like burying power lines, installing microgrids to limit the size and impact of public safety power shut-offs, removing dead trees, and investing in technology to detect downed wires.
PG&E plans to invest a portion of the revenue in clean energy technologies, such as system upgrades and charging infrastructure for electric vehicles, water use efficiency for its hydroelectric dams, and a battery storage system in Monterey County.
The ambitious rate increase has raised eyebrows among consumer and business groups.
Western Agricultural Processors Association President Roger Isom told Agri-Pulse the proposal would lead to the largest jump in energy rates in state history even though California agriculture is already paying the highest rates in the continental U.S. Isom, who also leads the California Cotton Ginners and Growers Association, worried how growers could compete with other cotton-producing states, where electricity is less than half the cost of California’s.
According to WAPA, rates for PG&E customers have already increased 37% since 2013.
“We feel strongly that we've already paid for this,” said Isom. “Instead of just paying out huge dividends to shareholders, they should have been investing in a lot of these upgrades that they're now asking us to do.”
The “biggest slap in the face” was that PG&E shareholders stand to make a profit on the infrastructure investments through a 12% rate of return, according to Isom, who argues they should instead carry the brunt of the cost.
While a previous deal secured with Gov. Gavin Newsom had limited the rate of return on some investments, this proposal would instead guarantee a fixed rate of return.
“PG&E has failed to make investments in their system over the last two decades,” Michael Boccadoro, executive director of the Agricultural Energy Consumers Association, told Agri-Pulse. “Because they were providing extreme profits to their shareholders.”
Boccadoro said San Diego Gas & Electric and other major utilities in California have encountered the same issues when it comes to “sky-high” rates.
PG&E’s submission of its general rate case for 2023-26 kicks off a two-year process for the California Public Utilities Commission (CPUC) to review the proposal and overall revenue increase. Utilities typically pitch a high number at the start and negotiate down. Even a rate increase half of what PG&E is proposing would be challenging for ratepayers to absorb, according to Isom.
In the second phase of the process, PG&E, CPUC and stakeholder groups will spar over the individual rates for each class of ratepayers. The increase would then become the base rate for each year thereafter.
The consumer advocacy group The Utility Reform Network (TURN) blasted the PG&E proposal and called for CPUC to reject it.
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“This mind-boggling PG&E increase is a slap in the face to millions of California residents still hurting economically from the pandemic and struggling to get back on their feet,” Mark Toney, the group's executive director, said in a statement.
While Isom would like to see CPUC reject the proposal, he expects the commission will approve a sizable rate increase. But it is still early in the process.
“Heck, we just barely finished the last general rate case,” he said.
The pandemic shutdowns, which barred face-to-face hearings, dragged the settlement negotiations on much longer than usual. Isom did not expect to see any substantial progress or public hearings on the new proposal until 2022.
In the meantime, PG&E stands to absorb significant new costs not outlined in the general rate increase. The company has been blamed for sparking catastrophic fires in 2017 and 2018 with its equipment, leading the utility to declare bankruptcy. The company is facing charges for the 2019 Kincaid Fire as well and could be held accountable for last year’s Zogg Fire.
PG&E recently acknowledged its equipment may have been responsible for igniting the Dixie Fire, which has grown to the second-largest fire in state history and destroyed more than 1,000 structures, about half of them homes. Before the fire, the company was planning to bury the power line that may have started the blaze.
After PG&E submitted the general rate case, it pledged to bury 10,000 miles of power lines to harden the grid against fires, which carries an estimated cost of $30 billion or more.
“That's not electric line in agricultural areas,” said Boccadoro. “That's electric line in rural northern mountain areas.”
He argued that ag lands act as buffers for wildfires yet farmers are not compensated for this service but punished with higher rates.
In February, CPUC issued a report projecting wildfire costs will drive electricity rates up as much as 30% by 2030.
“The CPUC faces multiple intersecting policy mandates that require a delicate balance to avoid unintended consequences,” says the report. “If handled incorrectly, California’s policy goals could result in rate and bill increases that would make other policy goals more difficult to achieve and could result in overall energy bills becoming unaffordable for some Californians.”
State policies for electrifying transportation are also affecting rates. The report focuses on the transmission side of electricity costs but leaves out the energy production side and the shift to renewable sources like wind and solar. Isom worried that rates would inevitably rise when switching from cheap, reliable energy sources — like nuclear, natural gas and coal — to more expensive renewable energy sources that depend on the sun to shine and the wind to blow.
“Our rates have no choice but to go up,” he said. “We have some difficult times ahead if this [rate increase] goes through.”
He has been encouraging food processors to move operations outside of California when possible, invest in on-site solar power generation, or find other ways to get off the grid.
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