Capitol Alert

Will utility rates go up under Gavin Newsom’s wildfire plan? It’s complicated.

‘We are not in an energy crisis,’ Newsom says of PG&E bankruptcy

California Gov. Gavin Newsom on Jan. 14, 2019, held a press conference to discuss PG&E’s plan to declare bankruptcy.
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California Gov. Gavin Newsom on Jan. 14, 2019, held a press conference to discuss PG&E’s plan to declare bankruptcy.

Gov. Gavin Newsom’s plan for covering the costs of future mega-fires allows him to boast that utility customers’ rates won’t go up to pay for his $24 billion plan.

But millions of customers who belong to PG&E Corp., Southern California Edison and San Diego Gas & Electric will help pay for the proposal through a monthly surcharge of about $2.50 a month.

California’s 2001 energy crisis prompted the state Department of Water Resources to buy power from the three investor-owned utilities. To help tame the markets, it issued more than $10 billion in bonds and added a monthly “DWR charge” on customers’ bills. The charge comes to about $800 million to $900 million a year.

That charge was supposed to expire when the bonds are paid off next year, but Newsom’s plan would extend that charge for another 15 years.

“The framework we will pursue maximizes shareholder contributions to a solution, minimizes ratepayer exposure to sticker shock rate increases, and mandates a culture of safety in our utilities to prevent wildfires,” Newsom said in a statement unveiling his proposal.

The crisis was the result of a state-approved deregulation scheme that forced the three utilities to sell off most of their power plants. They then had to buy much of their electricity on the spot market, sometimes just hours in advance, from the new owners of these plants.

Lawmakers believed deregulation would lower customers’ bills. While it worked for a while, the plan quickly went haywire after power generators began withholding electricity and trading firms, led by Enron Corp., found ways to manipulate supplies. The prices paid by PG&E, Edison and SDG&E quickly skyrocketed, leading to extended periods of “rolling blackouts” when there wasn’t enough power available to keep the lights on.

After months of hand-wringing, then-Gov. Gray Davis found the solution to buy the power and issue the bonds to cover the expense.

Mark Toney, of The Utility Reform Network in San Francisco, said the DWR charge should be allowed to sunset, as customers had been promised. He noted that ratepayers are already being charged for the billions the utilities are spending to improve fire safety.

“We’re paying our fair share,” Toney said.

Patrick McCallum, co-president of a wildfire victims advocacy group called Up from the Ashes, praised the plan, saying it would minimize the burden on ratepayers compared to other proposals that had been considered.

“I believe in the long run ratepayers will pay less,” McCallum said.

In a statement, Newsom stressed the need for Californians to contribute.

“Wildfires don’t discriminate,” Newsom wrote. “They are a rural, suburban and urban danger. We all have an individual responsibility to step up and step in for our communities as we confront new and growing threats.”

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Bryan Anderson is a political reporter for The Bee. He covers the California Legislature and reports on wildfires and transportation. He also hosts The Bee’s “California Nation” podcast.
Dale Kasler covers climate change, the environment, economics and the convoluted world of California water. He also covers major enterprise stories for McClatchy’s Western newspapers. He joined The Bee in 1996 from the Des Moines Register and graduated from Northwestern University.
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