Stanford expert discusses approval of millions in electrification investments amid uncertain financial future for California utilities
Energy policy expert Michael Wara comments on the decision to approve $768 million in transportation electrification projects and how it could affect utilities, the environment and California ratepayers.
In a huge boost to the electric vehicle industry, the California Public Utilities Commission (CPUC) recently gave the green light for the state’s three largest utilities to spend $768 million on charging infrastructure and rebate incentives to electrify the transportation sector. The approval was part of an effort to meet the state’s clean energy and electrification goals for 2030.
Although the infrastructure is needed to reduce the state’s greenhouse gas emissions, the cost of the investments will likely fall to ratepayers in the form of monthly rate increases. Southern California Edison estimated a monthly increase of about 50 cents over a few years.
Adding to that financial uncertainty, state investigators recently found Pacific Gas & Electric, California’s largest electric utility, responsible for three wildfires that occurred in October – others are still under investigation. Lawsuits related to those fires could cost ratepayers billions if PG&E manages to pass settlement costs on to consumers, adding a further financial burden to Californians’ monthly bills.
Given the uncertainty around potential costs related to wildfire lawsuits, some experts are questioning whether the CPUC – which is charged with protecting consumers and ensuring reliable utility service and infrastructure “at reasonable rates” – should be allowing such exorbitant spending at this time.
PG&E has committed to $250 million-plus in electric vehicle infrastructure and rebates. Given the potential liability with wildfire claims, is this a good time for the company to be committing so much money?
Committing to the grid upgrades that will be needed to electrify transport is a critical step to ensuring we achieve our climate and air pollution goals in the state. But I am concerned about commitments the CPUC has made on behalf of ratepayers before we fully understand the liability from last fall’s wildfires. In a worst-case scenario, ratepayers could be on the hook for billions of dollars, potentially amounting to $10/month or more on their electricity bills. Just like you don’t buy a new car when you might lose your job, I would prefer that the CPUC wait a bit on major new investments until we understand where the utilities stand.
Will this have any impact on the lawsuits filed against PG&E related to the wine country fires?
Almost certainly not. This is an indication that the utilities – or at least parts of them – are proceeding as if they will not go bankrupt due to liability associated with wildfires, although their leadership has raised this as a possibility.
How will this approval affect the state’s cap-and-trade program goals?
We cannot achieve the cap-and-trade program’s 2030 objective without substantial reductions in vehicle emissions. While there are multiple paths to reaching this goal, electrification of medium- and heavy-duty transport – the focus of the recent proceeding – is an important one. So, this is an early step on the road to delivering on the promises made by California.
Will this approval affect electricity rates for Californians?
Yes. Investments that utilities make are part of their “rate base.” Utilities are allowed to earn a return on these investments over their lifetime, which is charged to customers. Also, as these facilities wear out, utilities can charge customers for their depreciation. It’s a little bit like buying a house with a mortgage. The return that utilities earn on rate base is like mortgage interest while the depreciation expense is like the mortgage principal that gets paid down over time.
San Diego Gas & Electric has proposed rebates for home charging stations and installation services totaling $136.9 million. Given that ride sharing is making it easier for people not to own cars – a trend that is expected to increase with autonomous vehicles – do you think investing in residential charging is a good idea?
Given what we know now, I think it makes sense. Autonomous vehicles and ride sharing are both important to the future of transportation, but SDG&E needs to invest in the system that exists today – not in 10 years. In that system, electrifying single occupancy vehicles provides clear air quality and climate benefits in its service territory.