Sunday, March 28, 2010

Darbee's Shaky Finger on the Trigger of PG&E's Rate Design Begins to Terrify the Customers

    • Radical change in pricing strategy is generally not a favored approach in any business, but especially not utilities.  The revenue extraction model has long preferred slow and steady to abrupt and impetuous.
    • Adding to the chaos of perhaps the most tumultuous month in PG&E's history since its bankruptcy and taxpayer bailout earlier in the decade, last week Peter Darbee lurched to another "Hail Mary" rate proposal. 
    • Now he wants to raise his "average" residential customers' monthly bills by 14% in order to bring the residential top tier down by 40%.  And if Darbee's redistribution formula goes through, it will be applied not just to current costs but to whatever portion of his $5+ billion of rate increases he gets approved later this year by the CPUC.
    • Set aside the Lake Wobegon problem, where all of PG&E's customers now seem convinced they pay more than average.  This latest and greatest idea is not likely to go down well with those customers who know that natural gas prices -- the primary factor in the cost of generating electricity in California -- have plummeted in the past two years. NYMEX gas quotes are now below $4, compared to their peak well above $13 in 2008
    • Embedded in the new PG&E plan is a ratcheting down of the lowest priced residential "baseline" quantities from 60% to 55% of "average" consumption in each climate zone, and an increase of 4.6% for small business customers.  Oh, and a new, regressive monthly $3 fixed charge per residential customer irrespective of that customer's consumption. 
    • Not that Darbee didn't need to do something.  In a few short weeks he has managed to incite a ratepayer revolt in the San Joaquin Valley, extremely valuable territory for any utility in terms of future California population growth.  Somehow he managed to let his top residential rate -- the air conditioning rate -- climb up to 49.9 cents per kwh.

      • Ignore the irrigation districts and municipalities poised to get into the public power business, the investor-owned Southern California Edison Company -- which provides service to some Valley communities but actually has less low-cost hydro than PG&E -- has managed to hold its top residential rate to 29 cents per kwh!
      • Darbee's Central Valley customer uprising may have found its Lexington in the unlikely venue of Bakersfield on March 2.  PG&E's spokesman told a public session of the Kern County Board of Supervisors -- whether from stress, Stockholm Syndrome, or insurrectionist sympathies (employee morale has turned rancid during Darbee's five years as CEO) -- that local customers pay higher costs to keep bills low in the Bay Area and other temperate parts of the company's service territory.
      • "The blunt acknowledgment that PG&E rates are unfair left many observers stunned," the Bakersfield Californian reported, noting that the Supervisors unanimously voted to place an advisory measure on the ballot to determine whether to replace PG&E with a municipal utility district.
      • Within the week, PG&E's Senior Vice President for damage control was in the pages of the Californian with an op-ed, followed by a full page ad the next day, insisting that the whole thing was just a big misunderstanding:  
      This is not a situation of Kern County versus the Bay Area. Recent public discussion has suggested that customers in Kern County are paying more than customers in other parts of our service area. In fact, Kern County households in 2009 paid a lower average rate than households did, on average, in the rest of PG&E's service area.
      As of December 2009, 42 percent of our customers in this area are part of our CARE (California Alternate Rates for Energy) program, which helps keep electricity costs low for those who are enrolled. Kern County has one of the highest levels of participation in this electricity program in the state, and nearly twice that of our systemwide average.
      • PG&E asked for Kern County support for its February sleight-of-hand rate proposal, which would reduce Tier 5 and Tier 4 rates by 5.5 and 3.7 cents per kwh, respectively, while raising Tier 3 rates by 4.3 cents per kwh.  "Working together, we can solve this," the op-ed intoned.
      • Apparently not.  Bakersfield is not exactly a hotbed of let's-expand-the-role-of-government philosophy, but under the headline "Time for PG&E to Settle Down, Get Its Story Straight" the Californian editorialized a few days later:
      Increasingly skeptical Kern County power users are rapidly coming to the conclusion -- right or wrong -- that they're guinea pigs in an experiment gone badly wrong, and PG&E seems incapable, whether because of incompetence or a deep-seated culture of arrogance and evasiveness, of convincing us otherwise.
      No wonder municipal and regional governments up and down the state have started exploring the wisdom of energy independence. PG&E is so worried, it has spent $36 million writing and promoting Prop. 16, which if passed would make it exceedingly difficult for municipalities to establish their own utilities.
      • So Darbee upped the ante last week. He apparently hopes the rest of his customers won't notice, at least not before the June 8 election.  Or that his shareholders won't question -- at least not before their May 12 vote on his bloated pay package -- just what kind of business judgment they're getting from their $10.559 million CEO.
      • Meanwhile, the California Manufacturers & Technology Association and the California Farm Bureau both joined the California Association of Realtors, the Agricultural Energy Consumers Association and a growing list of local business groups opposing Proposition 16.

      (Photo credit:  Darbee, Genesis Photo Agency)