PG&E — in a bid to ward off a growing number of jurisdictions such as South San Joaquin Irrigation District seeking to convince the bankruptcy court to allow them to buy part of the for-profit utility’s system — has repeatedly asserted small public utilities lack the wherewithal to provide the financial resources necessary to operate a safe and reliable system.
Bere Lindley begs to differ. And it’s all based on one of the most rudimentary ways to judge the financial viability of a business — the amount of cash on hand to cover day-to-day operating expenses if you do not receive another penny in revenue.
Lindley, who serves as the SSJID assistant general manager while also overseeing the district finances, told the Manteca Rotary Club meeting Thursday at Ernie’s Rendezvous Room that he compared the financial soundness of PG&E and SSJID using the same measuring stick bond rating firms use.
“PG&E is 100 times larger than SSJID and has a lot more cash (because of that) ,” Lindley noted. “To accurately compare the two you need a scale.”
That scale is the accounting concept of cash on hand. Bond rating firms place the optimum amount of cash on hand at enough money to cover operating expenses for 200 days.
The comparison showed PG&E had enough cash on hand to operate for 12 days. SSJID, meanwhile, had enough cash on hand to operate for 1,400 days or almost four years.
That was in September. Since then PG&E has gone into bankruptcy for the second time in 20 years, burned through all of its cash, and is facing at least $30 billion in liabilities. Meanwhile PG&E’s bond rating is virtually junk status meaning any financing they secure short of a hedge fund bailout will come with exorbitant interest rates. SSJID has one of the highest ratings falling in the “A” category for bonds which means lower interest rates. That is sweetened by the fact a public agency running a utility can sell tax-exempt bonds that carry lower interest rates.
The cost of financing is a big factor in keeping power rates down. SSJID estimates it will cost $200-$300 million for needed upgrades to the power distribution PG&E currently operates within its boundaries after it acquires the system.
Lindley noted PG&E has constantly dismissed suggestions in the past two months about breaking up their company that serves 16 million people into smaller public entities based on their assertions smaller entities not only lack the financial ability to run an electrical system but do not have the economies of scale needed to deliver lower rates. The SSJID has conducted two studies — verified as accurate by a consulting firm that PG&E has used to assess its own company — that conclude the district is in the position to initially lower rates at least 15 percent across the board once they take over the system serving Manteca, Ripon, and Lathrop.
Lindley noted there are more than 2,000 public electrical districts across the nation. Most have been in place for decades. Studies show those 2,000 public agencies providing power to their customers that are 13 percent lower than what ratepayers served by for-profit utilities are charged.
Those public agencies serve an average of 4,000 customers. SSJID, if it becomes a retail power provider, will have 40,000 customers putting it within the top 10 percent in terms of size when it comes to public power agencies.
He pointed to an example in Eugene, Oregon where people fed up with an unresponsive utility that was unreliable and expensive took steps to form Emerald People’s Utility District in 1983. Today that utility district serves 14,000 customers with more reliable and less costly power than that provided by neighboring for-profit utilities.
Emerald People’s Utility District’s roots can be traced back to three housewives meeting in the living room of one of their homes that were fed up with expensive power bills.
Lindley noted other ways PG&E as a protected monopoly jacks up the cost of other people doing business.
For example a developer is not only required to pay for and put in place underground utility infrastructure and then gift it to PG&E but they are also required by the California Public Utilities Commission to give PG&E the cash equivalent of 35 percent of the value of the improvements. That’s to cover what essentially are federal and state taxes on “the gift” that is treated as revenue under tax codes.
PG&E now has an unbroken string of 10 years of not paying any federal taxes due to tax credits that were designed to encourage utilities to invest in infrastructure and not come up with creative bookkeeping to increase profits. That means well over two thirds of the 35 percent in cash value developers write checks for is not needed to cover PG&E taxes. Instead of refunding that money, CPUC regulations allow PG&E to pocket the money. That is in addition to the state guaranteed 10.5 percent return they collect from ratepayers. Instead of investing that considerable windfall from developers into upgrading infrastructure and improving operating safety PG&E elected to divert it to shareholders dominated by Wall Street hedge funds.
“PG&E is a natural monopoly,” Lindley explained.
That means they have no market competition that would require them to attract customers based on quality of service and price. Because there is no competitive marketplace PG&E has no incentive to keep its prices as low as needed to stay viable or to attract and retain customers with quality service.
To contact Dennis Wyatt, email dwyatt@mantecabulletin.com
