OAKLAND — PG&E has filed a proposal that could raise monthly bills, depending on the outcome of a new regulatory proceeding that’s tied to the cost of financing the utility titan’s operations.
The potential for higher monthly bills arrives at a time when PG&E has been battling to keep ratepayer costs to an annual increase that is close to the general inflation rate, as measured by consumer prices.
The cost of capital proposal is part of a regulatory process that occurs roughly every three years to explore how PG&E’s investments are financed — and what burden falls on ratepayers as a result.
Oakland-based PG&E filed its cost of capital proposal with the state Public Utilities Commission on Thursday.
“If approved, PG&E’s proposal would increase residential customer bills by approximately $5.50 per month, reflecting a higher interest rate environment,” PG&E stated in an email the utility sent to this news organization.
The increase in monthly bills won’t occur before 2026, according to the filing.
PG&E said an array of factors currently influence the utility’s operating costs and the expense to finance them.
Among the factors:
— Prices and interest rates that might be influenced by inflation and supply chain disruptions.
— Federal government actions that could impact costs.
— Extreme weather events.
— A California policy that makes utilities strictly liable for damages that their equipment can cause, such as a wildfire. This policy, unique to California, is called inverse condemnation.
One of the key components of the proposal is PG&E’s estimate for the rate of return on equity investment that the utility deems reasonable.
In prior proceedings, consumer groups have criticized PG&E’s methodology for determining an appropriate rate of return for its investments in the company’s operations.
PG&E estimated that 11.3% is a reasonable rate of return, an assessment that was supported by a third-party expert who provided testimony in the filing. PG&E’s prior rate of return on its equity was 10.28%.
Regardless of what the PUC determines is a reasonable rate of return, PG&E isn’t guaranteed to recover its costs. The application simply provides an opportunity for the utility to recoup its costs.
The dividend that PG&E pays its shareholders is the utility industry’s lowest. PG&E reinvests 97% of what it earns back into the company and its operations, the company stated.
PG&E, Southern California Edison, San Diego Gas & Electric and SoCal Gas all submitted on Thursday their cost of capital applications for 2026.
State rules oblige California’s major utilities to submit cost of capital applications every three years.
PG&E hopes that a federal Energy Department loan guarantee totaling $15 billion, in one of the final acts of Joe Biden’s administration, might ease its efforts to corral financing.
The loan guarantee will enable PG&E to obtain financing through unique funding sources that could provide lower interest costs compared with conventional loan vehicles.
PG&E noted that financing its costs over a longer period rather than immediately charging the expenditures to the rate base — and customer bills — is a way to ease the burden on ratepayers.
Even with the potential increase that would arise from this proceeding, PG&E is attempting to keep bill increases to an annual rate that is within the rough range of inflation, a goal that PG&E Chief Executive Officer Patricia Poppe expressed to this news organization in April 2024.
“We see a future where customers’ bills can start to come down,” Poppe said in response to questions from this news organization about fast-rising customer bills.
By the first billing cycle in January 2025, PG&E had achieved that goal. The utility believes it can continue to do so.
“PG&E expects average annual bill increases still will be limited to 2% to 4%, through 2026, without sacrificing safety,” PG&E spokesperson Lynsey Paulo stated in an email to this news organization.