San Diego Gas & Electric Wants You to Pay for Its Negligence

Your pocket is being picked in an alleged conspiracy between San Diego Gas & Electric and the California Public Utilities Commission, which is supposed to regulate utilities but actually mollycoddles them. This chicanery, spelled out in a lawsuit filed February 6, could cost every SDG&E bill-paying customer more than $350 initially and far more than that later.

Basically, the company and its parent, Sempra Energy, want to shift part of the cost of past and future wildfires to their customers instead of to their shareholders. Consumers would pay fire costs not covered by SDG&E’s insurance. The utility wants customers to pay for costs of the 2007 fires and then indemnify the utility against future costs in excess of insurance coverage.

At a hearing January 11–13 in San Francisco, an SDG&E executive admitted that customers might be required to pay $463.9 million for the uncovered costs of the 2007 fires alone. The utility has 1.3 million rate meters. That comes to $356.85 per customer paying the bill. That sum could go up or down because of a number of variables, including lawsuits, but the point is clear: if the local utility and the utilities commission sneak this one through, SDG&E customers’ bills could soar beyond many people’s ability to pay. A serious fire every few years, for example, could drain many households of savings.

This is not just an accounting adjustment; it is an actual payment, explains Scott Logan, an analyst with the utility commission’s Division of Ratepayer Advocates, which represents consumers. “The utility wants ratepayers to pay the costs,” although the payments might be amortized over several years, he says.

As studies by the California Department of Forestry and Fire Protection (Cal Fire) and the utility commission’s own Consumer Protection and Safety Division have shown, much of the 2007 fire damage was the result of SDG&E’s improper design, construction, and maintenance of power lines. Yet, in desiring to shift the financial burden to its customers, the company implies that the disasters were an unavoidable accident, such as an act of God, like Florida hurricanes. Joseph Mitchell, a fire expert with a PhD in particle physics, points out that the power lines were not built to withstand strong winds, and their clashing ignited the fires. “Ignitions are not an act of God, and you have to have ignition to start a catastrophic fire,” says Mitchell.

His wife, Diane Conklin of the Mussey Grade Road Alliance in Ramona, has requested a public hearing on the matter in San Diego. The commission normally would hold a local hearing on matters affecting rates. At this kind of public-participation gathering, the commission’s administrative law judge and/or the commissioner in charge of the case would hear from aggrieved customers. SDG&E doesn’t want any such hearing until the commission has set up a mechanism for putting the financial burden on ratepayers. Then it would be too late, says Conklin. The commission has not yet ruled.

This is a question of what economists call “moral hazard.” Indemnification begets short-term thinking and carelessness. “The top executives of corporations have a shorter life span in their positions than we as ratepayers have,” she says. If the company gets customers to pay for costs of past and future fires, “the executives will be out to maximize short-term profits and be less likely to put in money and time and effort to keep their systems safe,” she says.

In essence, says Conklin, the alleged cabal of SDG&E and the commission is a microcosm of cancers now weakening the United States economy: the enrichment of stockholders at the expense of consumers; the “too big to fail” mentality; corporate welfare; and the public being shut out of critical decision-making.

In its annual and quarterly reports to the Securities and Exchange Commission, Sempra has been reporting that it expects to get its customers to cough up. In its latest quarterly report, Sempra said, “SDG&E has concluded…that it is probable [italics mine] that it will be permitted to recover from its utility customers substantially all reasonably incurred costs of resolving wildfire claims in excess of its liability insurance coverage.” So confident is the company that it has already chalked up the money as a regulatory asset, even though it hasn’t even formally filed for it.

So why is SDG&E cocksure it can fleece its customers? San Diego attorney Mike Aguirre has done a huge amount of the legal work fighting the utility and the commission. He has tried to find out why this shifting of costs to innocent consumers is “probable.” Aguirre has requested answers from the company and the commission and been stonewalled. The utility won’t testify under oath on grounds of attorney-client privilege, among other things. Tellingly, a commission official said certain statements were made in settlement discussions. “Those communications are protected from disclosure,” said the official.

In August of 2009, San Diego Gas & Electric, along with fellow utilities Pacific Gas & Electric and Southern California Edison, sought to have the commission set up a mechanism for recovering future fire costs not covered by insurance. In a commission filing Monday, Aguirre shows convincingly that in the secret negotiations addressing future fire coverage, SDG&E said it wanted payment for the 2007 disaster for which it was greatly responsible. As a result of those meetings, cloaked in confidentiality agreements, the local utility became convinced it would be permitted to knife its customers, thus sparing shareholders who should properly bear the costs of mismanagement. Just before the January hearings in San Francisco this year, Pacific Gas and Southern California Edison backed out.

On February 6, Aguirre filed a lawsuit against the utilities commission in an attempt to force the regulator to release documents that will show what happened at those meetings. In addition, he would like to see San Francisco law enforcement officials convene a criminal grand jury investigation into the matter. Given weak white-collar law enforcement in San Diego, “It couldn’t happen here,” he says.

Two commissioners, utility press-relations executives, and Michael Shames of San Diego’s Utility Consumers’ Action Network did not respond to questions.

From Sempra's 2010 Annual Report

From Sempra's 2010 Annual Report

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So the question of Shames' role is out in the open again. Is he really advocating for the ratepayers, or has SDGE managed to silence him? And if they have, how did they do it?

You ask very good questions. I am asking the same questions, and other related ones. I believe I have some of the answers but haven't pulled all this together yet.

Incidentally, readers should look at the News Ticker item with the head "Do Sempra Shareholders Need Any Further Massaging?" It's Sempra's own chart, showing that beginning in 2000, Sempra stock soared 208% to the end of 2010, while the S&P 500 only went up 15% and the S&P utilities index inched up 8% in the same period. Reason: Sempra and SDGE are run completely to satisfy shareholders and don't care a whit about customers. That is a major reason why Sempra stock has so vastly overperformed other stocks, including other utilities stocks. I hope to get that chart moved over here under the column, so more readers can see what has been going on, and can ask themselves: why should shareholders dodge responsibility for events caused by SDGE management, while customers, who were innocent, and in some cases victims, pick up the tab? Best, Don Bauder

SDG&E is another example of privatizing profits and socializing losses.

Absolutely, Ponzi. Sempra is also an example of managing the company purely to run the stock up, and happily screwing one's own customers in the process. It is up to San Diegans to make sure that Sempra and its co-conspirator, the CPUC, are cleansed of this socially deleterious mentality. Best, Don Bauder

The business theory is that investors risk their capital when they buy stock in a company. With SDGE the investors have no risk, the deck is stacked in their favor. No matter what the risk the ratepayers always pay the cost.
Not only the cost of their incompetence but we also pay for discounts to SDGE employees for their utility costs. Imagine if government were to provide their employees a discount on their property tax. It's time to realize that excessive business profits are nothing more than a private corp tax on the public, particularly when the corp is a monopoly & customers have nowhere to go.

You are quite correct about capitalist theory, Dennis. But in recent decades, risk has been shifted from shareholders to the public, and not just in the case of SDGE. Look at the big banks; they gamble with derivatives and get bailed out. In California, pro sports team owners, hoteliers, shopping center developers, auto dealers, all manner of supposedly private enterprises have been subsidized with redevelopment funds stolen directly from the schools. Hopefully, that is ending. What we have in the U.S. is privatization of the gain and socialization of the risk. That is not how a capitalistic system is supposed to operate. Look at our situation today: we suffered the worst economic downturn and weakest economic recovery since the Great Depression. But stocks have doubled since early 2009. Why? One of the major reasons is that the Federal Reserve has decided its primary mission is to bail out the stock market at the expense of the public. The easy monetary policy (amazingly low interest rates) has driven up stocks but done very little for the economy, and absolutely walloped savers. But the Fed will probably supply even more juice. Risk? That's for the little people to carry on their shoulders. Best, Don Bauder

Is this a good reason to hold your utilities, let your gas go, and sit tight on your Continental Can?

Can I morally own utilities stocks?

I am not uncomfortable owning utilities stocks. The others are not as greedy and irresponsible as SDGE/Sempra. I think the above the chart tells the story. Sempra stock up 208%, utilities stocks generally up 8% since year 2000. This is an indication that Sempra is far more obsessed with sating shareholders' greed than other utilities are. And that's a reason that you, the SDGE/Sempra customer, are getting screwed, and the company is setting you up to get screwed indefinitely in the future. Best, Don Bauder

". . . the payments might be amortized over several years, he says." Oh, beat the drum lowly and heat the consumer "frog" slowly, and play the death march as you string me along . . .

The frog in the stove pot is a very good analogy if SDGE amortizes the payment as it hopes to do if its scam goes through. Best, Don Bauder

The frequency of fires is likely to increase rather than decrease as population and the miles of wires increase.

With respect to fire prevention, what specific changes were made for the new transmission wires now being built in East County?

I agree that fire frequency is likely to increase. And damages per fire are likely to rise, too. I can't answer your question on East County; I have not looked into that. Best, Don Bauder

MUSSEY GRADE ALLIANCE CALLS SDGE MOVE "UNCONSCIONABLE." Ramona's Mussey Grade Alliance filed today (Feb. 17) its opening brief in the upcoming California Public Utilities Commission hearings on SDGE's attempt to get ratepayers, and not shareholders, to pick up the tab for 2007 fire damage not covered by insurance. The utility also wants a blank check for customers to shell out for SDGE's liability in excess of insurance in FUTURE fires. Mussey, a community activist group, said that the CPUC should deny SDGE's attempt to set up a mechanism for this naked wealth transfer from poor to rich, hold public hearings in San Diego County, and order SDGE to initiate a risk analysis study to quantify risks of wildland fire losses. SDGE's attempt to get ratepayers to pay "is an unconscionable and brutal attack by the electric utility on its own customers," says the brief. "People of San Diego will never believe in this commission to do the right thing if the application is approved."

AGUIRRE ASKS JUDGE TO STRIKE SDGE'S REQUEST. San Diego attorney today (Feb. 17) asked the administrative law judge to strike 12 pages from SDGE's opening brief in the upcoming hearing on whether the utility can pass its uninsured fire costs, past and future, to utility ratepayers instead of shareholders. Aguirre notes that SDGE's parent, Sempra Energy, has already recognized $463.9 million regulatory asset in filings with the Securities and Exchange Commission. Also, says Aguirre, Commissioner Timothy Simon, who is assigned to the case, lauded SDGE in a company-created news release when it used a minority underwriter in selling $350 million in bonds last year. The news release incorporated the Sempra 10Q in which the $463.9 million had already been chalked up. "You are being asked to act to maintain public confidence in the [California Public Utilities Commission] which now suffers from a crisis of legitimacy," said Aguirre.

There is a two-faced aspect to SDGE that I've been seeing for forty years. One recent part of that is they want to be able to charge more during periods of high electrical demand. "Smart meters" will allow that. In the service area, those peaks are almost always hot afternoons when the need for AC is high. The more solar installations on the roofs of customers, the less burden there would be on the grid, because those hot afternoons are invariably sunny. So, when there is a big demand to run AC, there is a peak of solar power that can help avoid the need to buy power from out of the area, to use "peaker plants", and a host of other measures they claim to use to keep the power on.

But SDGE is doing what it can to discourage homeowners and others from putting in panels. They were willing to buy the excess solar power on an exchange basis, and now want to pay far less, reflecting the fact that those solar power generators are using the SDGE grid to sell the power back to SDGE. The result is that the payback for the solar panel buyer will be much less favorable, and the incentive may not be sufficient. (You would never know that from all the advertising these solar installers are doing; they want to sell them before the change in rates goes through. They're not telling potential buyers that the picture may undergo a big change, either.)

This new power link is being constructed to bring "Solar Power" from the desert to the service area, or so says SDGE, but it doesn't want to provide an incentive to generate solar power locally. Two faced? That's what I call it.

A grass roots movement must start quickly: the aim would be to get customers to escalate installation of solar systems if SDGE succeeds in passing these costs on to customers. You are right: SDGE on the one hand discourages local solar systems but wants to bring in solar power from the desert so it can charge outrageous rates. It is time for people to mobilize. Actually, SDGE is playing into the movement's hands. The more people pay to indemnify their utility against wildfires, the more economical solar becomes. Best, Don Bauder Best, Don Bauder

Folks, don't let them divide (and thus conquer) y'all. They will try to dilute your comments and set you against each other. They also will insert fifth columnists into the audience. Try to head such tactics off at the pass. Pool the comment times by giving one or two speakers enough time to speak for the group and select a good speaker (fifth-columnists will try to get this spot and add diluting comments) who will stick to a script. Basic politics: STAY ON MESSAGE.

Get a big crowd out early and notify the media that you will be assembling before and after the "meeting." Minimize drama, but be firm and strong (just not strong-smelling).

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