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PG&Es business model: Guaranteed profits while never putting capital at risk
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The fun is about to start.
Pacific Gas & Electric is gearing up for its song and dance mode.
You know the tune. The electrical distribution system in Manteca, Ripon, and Escalon is priceless. They built it on old-fashioned American enterprise and ingenuity. The refrain is how evil and hostile eminent domain is and that no one should be allowed to commander someone else’s property using it.
PG&E will be brushing up on its indignant act now that the court has cleared the way for South San Joaquin Irrigation District to enter the retail power business and free the people, farmers, and businesses of Manteca, Ripon, and Escalon from PG&E’s government guaranteed 11.45 percent profit margin no matter how many neighborhoods they blow up, how many times the brass send the company to the edge of bankruptcy, how many corporate jets they buy, or  how many $1 million bonuses they dole out to their small army of vice presidents while they squeeze the wallets of the International Brotherhood Electrical Workers rank and file.
First they will say the PG&E distribution system is solid gold.
But before you buy that argument, here are a few things you should consider.
For decades PG&E has filed for rate increases before the California Public Utilities Commission outlining what they needed more money for. Among those rate increases have been funds to replace aging power poles, to put in new main distribution lines, legal costs, and day-to-day operating expenses. It is all totaled up and then 11.45 percent slapped on top to assure PG&E profits no matter what.
Should they not spend everything they said they need over three years on legal fees, PG&E pockets the balance. Should they not replace 15,000 power poles and buy something instead such as a corporate jet they simply ask for the amount to cover those 15,000 power poles again in a future rate hike.
In short PG&E’s shareholders are never put at risk to build the infrastructure that makes PG&E money. The ratepayers pick up the tab and the CPUC makes sure PG&E never has to dip into its guaranteed profit margin.
PG&E, for example, wants to cash in on electric cars. A “real” business would either have to come up with the cash or borrow the $635.8 million they need to install 25,000 charging stations in Northern California to effectively squeeze out the competition. Not PG&E. They are going to the CPUC and asking for a rate hike that will add 70 cents a month to a typical PG&E residential costumer’s bill whether they have an electric car or not.
The best part is PG&E will have a new revenue source without putting a penny at risk.
It gets better.
If you bought a home in a neighborhood built in the last 50 years, you have paid for all of PG&E’s cost of serving the homes in it so they can make more money under the CPUC’s 11.45 percent guarantee. That’s because what the developers are slapped with they pass on in the price of a new home.
When a subdivision is built all of the main distribution lines, underground boxes, and connections to individual homes are paid for by the developer under CPUC rules. They then turn it over to PG&E not just simply for free but writing them a check as well for 38 percent of the value to cover their state and federal taxes.
And just when you think it can’t get any better it does.
PG&E has had more than a few years of zero tax bills including from 2008 to 2010 when it had profits of $4.85 billion thanks to sweetheart tax subsidies from Uncle Sam.
So in those years did PG&E give the developers back their money? What a silly question. Of course they didn’t. And even in years they do pay taxes it typically falls short of what they collect from developers yet they still keep the excess money.
Name another entity that gets the means to sell services paid for upfront by customers, can mandate “tax” payments from developers to cover gifts of infrastructure, and can force their customers to pay a surcharge so they can expand their business into new areas such as electrical charging stations for cars.
You can’t. Only privately held utilities protected by the CPUC can do that.
PG&E’s other tale of woe you will be hearing about in the coming months is how ruthless SSJID is using eminent domain to force the sale of all the infrastructure that wasn’t financed by shareholders but ratepayers.
Here’s a question to ask your friendly PG&E vice president should you run into him shopping at the Manteca Food-4-Less or perhaps bump into the PG&E CEO at the Ripon Main Street Day celebration: How often do they use eminent domain to maximize their profits?
What? That’s not the same because it’s for the public good?
How can maximizing PG&E’s profit be in the public’s good as opposed to making it so ratepayers in Manteca, Ripon, and Escalon aren’t subject to guaranteeing PG&E’s 11.45 percent profit margin regardless of the economic times?
And here’s a news flash: PG&E by the strictest definition is not a private business. It is a quasi-public agency invested with the power of eminent domain and a government guaranteed profit margin.
Let the games begin.

This column is the opinion of executive editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA.  He can be contacted at or 209.249.3519.