Pacific Gas and Electric Company (PG&E) filed its Cost of Capital proposal with the California Public Utilities Commission (CPUC) designed to make sure PG&E is meeting the energy needs of its customers by attracting the critical funding necessary to invest in and increase the safety and reliability of its energy system, while also addressing the heightened risks of California’s year-round wildfire season.
PG&E and other regulated investor-owned utilities rely on capital markets to raise funds from investors to make necessary investments in infrastructure, system safety and reliability to offset upfront costs to customers.
Over the next four years, PG&E expects to fund up to $28 billion in energy infrastructure investments. Among the critical investments the Cost of Capital would support:
•Electric and gas safety and reliability and increased system hardening: $21 billion
•New gas pipelines and electric powerlines: $4 billion
•Power generation: $1 billion
•Information technology, equipment and other facilities: $2 billion
“Meeting the future energy needs of our customers is absolutely critical. In order to invest in the affordable, safe, reliable and clean energy future our customers expect and demand, investors must continue to play a vital role in providing the capital necessary to fund essential safety and reliability infrastructure upgrades. These investments allow PG&E to offset the upfront, immediate costs of these long-term projects to our customers. We know that any rate change has real impacts on our customers, and we are committed to working together with state leaders to develop solutions that will allow us to reduce the costs borne by our customers,” said Jason Wells, senior vice president and chief financial officer, PG&E Corporation.
Future Policy Action
The company is working with regulators, policymakers and other stakeholders to develop shared solutions to address the current financial impacts of extreme weather and wildfires facing all Californians. PG&E understands that any increase to customers’ rates can be significant and that this approach is neither the best nor the preferred solution to the current crisis.
The Governor recently issued a report including key principles intended to preserve the financial health of California’s energy companies and safeguard the state’s energy future, while the Commission on Wildfire Cost and Recovery is expected to release specific recommendations by July 1 on how to more equitably assign the financial risks associated with wildfire.
PG&E is committed to working collaboratively with all parties to reach a sustainable, and equitable, policy solution to the current situation. If such a solution is reached, PG&E is committed to amending its application with an updated Cost of Capital, decreasing the impact on customer bills.
Open and Transparent Public Process and Impact to Customer Bills
The Cost of Capital is how much a company is allowed to charge in rates as a return on invested capital and is subject to an open and transparent public review and approval by the CPUC. PG&E strongly supports and encourages its customers to provide feedback and participate in this important process, which will help shape customer rates and California’s energy future.
If approved by the CPUC, PG&E’s proposal would update the current return on equity from 10.25 percent to 16 percent. PG&E is proposing a $1.2 billion increase in its currently approved Cost of Capital, based on a 16 percent return on equity.
Approval of the request would result in a monthly bill increase for the average residential electric non-CARE customer of $7.85, or an increase of 7.0 percent. For the average residential gas customer, the monthly bill impact would be $4.25, or a 7.7 percent increase. If approved, the change in customer bills would be effective Jan. 1, 2020.
