Pacific Gas and Electric Company

US$14.628 Billion

US$2.261 Billion

US$1.338 Billion

The Pacific Gas and Electric Company (NYSE: PCG), commonly known as PG&E, is the utility that provides natural gas and electricity to most of the northern two-thirds of California, from Bakersfield almost to the Oregon border. It is a subsidiary of the PG&E Corporation.

PG&E was founded in 1905 and is currently headquartered in the Pacific Gas & Electric Building in San Francisco.

History

San Francisco Gas

In the 1850s, manufactured gas was being introduced as means of lighting for the first time and coal gasification works were being built in the larger eastern American cities. San Francisco pioneer foundryman and blacksmith Peter Donahue and his brothers established a foundry below North Beach, and later in the south of Market area. The foundry would become the Union Iron Works, the greatest industrial concern in 19th century San Francisco. Donahue learned all he could about gas manufacturing and with his brother James and a young engineer named Joseph G. Eastland incorporated the San Francisco Gas Company on August 31, 1852. The original location for the gas works was bounded by First, Fremont, Howard and Natoma streets south of Market, on the then shore of the San Francisco Bay. On the night of February 11, 1854, the streets of San Francisco were for the first time lighted by gas, and a banquet was held at the Oriental hotel. In a year, the company had 12 miles (19 km) of street mains, thousands of gas streetlights, two gas holders at First and Howard with a combined capacity of 160,000 cubic feet (4,500 m³) and a monopoly of city gasification contracts. The cost of gas was billed at 15 dollars per thousand cubic feet, where no meters were installed, the price was estimated from the size of the burners. Shortly thereafter, the Citizens Gas Company was given a fifty year franchise by the state legislature but when the company was built and ready to deliver gas, it sold out to the San Francisco Gas Company.

In April 1870, the City Gas Company was organized and built its works on the Potrero Point shoreline. Another company, the Metropolitan Gas Company, was established but was not a success, and it was quickly purchased by the San Francisco Gas Company.

San Francisco Gas Light

All these companies were merged with larger infusions of capital into the San Francisco Gas Light company in 1873. A rival company, the Central Gas Company, came into existence in 1882 and the rate for gas went as low 0.90 cents a thousand cubic feet. The Central and the Pacific Gas Improvement Company were merged into the San Francisco Gas and Electric Company, (SFG&E Co.) September 1, 1903.

Rapid technological improvements in the processes of manufacturing gas were immediately adopted by the company. When petroleum was produced in California, the manufacture of water gas, then in general use in eastern and midwest states, began in San Francisco.

Water gas was first made from anthracite coal brought around Cape Horn from Swansea in Wales and enriched with California petroleum. The first water gas works, a thoroughly modern plant, was established at Potrero Point and the manufacture of water gas was a success due to the increased amount of petroleum available that reduced costs. The company then acquired land in North Beach at Bay, Laguna and Webster streets, and in 1891, the North Beach Gas Works was built. For many years this facility, with its 2 million cubic feet (57,000 m³) gas holder, was considered the finest gas works in the world. The original plant at Howard Street was dismantled.

Around 1890, they also built a small electrical generator at the Potrero Point site, a first in California. This site would later become the Potrero Generating Station.

San Francisco Gas and Electric

In December 1896, the San Francisco Gas Light Company merged with the Edison Light and Power Company under the new title San Francisco Gas and Electric Company and this company existed until 1903 and then dissolved.

Other companies that started in the business in active competition but eventually merged into the SFG&E co. were the Equitable Gas Light Company and the Independent Electric Light and Power and the Independent Gas and Power company, founded by Claus Spreckels, the king of California sugar.

Pacific Gas and Electric company 1905

The company known as Pacific Gas and Electric incorporated on October 10, 1905, as a consolidation of more than two dozen power and water concerns around the state. PG&E went on to consolidate power in northern California and by 1952 represented 520 companies merged.

By 1906, the exclusive use of petroleum for manufactured gas was catching on and a 4,000,000 cubic feet (110,000 m³) gas-oil unit was built at the Potrero Gas Works. A similar unit had been built at the Martin Station in Visitacion Valley on the San Mateo County border and was connected to the Potrero works by a 12-inch (300 mm) high pressure pipe for use in San Francisco. At around the same time, hydroelectric power was established in California at the Colgate power plant on the Yuba River which began to deliver power for agriculture. In 1905, Pacific Gas and Electric Company was formed by a merger of the SFG&E Co. and the California Gas and Electric Corporation. The 1906 earthquake destroyed the North Beach Gas Works but the Potrero works were unaffected and along with the Martin Station, supplied the city after the Great fire. In 1912 PG&E began installing meters to free itself from the previous flat rate billing scheme.

PG&E began delivering natural gas to San Francisco and northern California in 1930 through the longest pipeline in the world, connecting the Texas gas fields to northern California with compressor stations that included cooling towers every 300 miles (480 km), at Topock, Arizona, on the state line, and near the town of Hinkley, California. With the introduction of natural gas, the company began retiring its polluting gas manufacturing facilities, though it kept some plants on standby.

Streetcars

1906 also marked the year that PG&E purchased the Sacramento Electric, Gas and Railway Company. The history of the PG&E streetcar lines in Sacramento goes back to the Sacramento City Street Railway, a 5-foot (1.5 m) gauge horsecar railway that operated 9 miles (14 km) of street railway in Sacramento in the late 19th century. The Sacramento Street Railway was purchased by the Sacramento Electric, Power and Light Company Electric Railway. In 1896, the Sacramento Electric, Power & Light Company Electric Railway was purchased by the Sacramento Electric, Gas & Railway Company. In 1906, PG&E acquired the line and in 1915 PG&E operated the line under the PG&E name. PG&E's streetcars had lines such as the "#6 - Oak Park Line". In 1943, PG&E sold the lines to Sacramento City Lines which ended up in the hands of the National City Lines. National City Lines converted several streetcar lines in that era to bus service and the track was abandoned on January 4, 1947.^[3]

North American Company

By 1940, PG&E had become one of four major direct operating company subsidiaries, out of a group of ten major direct subsidiaries, that were controlled by North American Company. In eight of the ten direct subsidiaries, North American owned at least 79% stake. By 1940 North American was a US$2.3 billion holding company heading up a pyramid of by then 80 companies.^[4]

North American's stock had once been one of the twelve component stocks of the May 1896 original Dow Jones Industrial Average.^[5] North American Company was broken up by the Securities and Exchange Commission, following the United States Supreme Court decision of April 1, 1946.^[4]

Postwar era

In the post war era, PG&E went on a massive building spree, creating 14 new hydroelectric plants and 5 steam plants.

As of December 1992, PG&E operated 173 electric generating units and 85 generating stations, 18,450 miles (29,690 km) of transmission lines and 101,400 miles (163,200 km) of distribution system.

In the later 1990s, under electricity market deregulation this utility sold off most of its natural gas power plants. The utility retained all of its hydroelectric plants, the Diablo Canyon Power Plant and a few natural gas plants, but the large natural gas plants it sold made up a large portion of its generating capacity. This had the effect of requiring the utility to buy power from the energy generators at fluctuating prices, while being forced to sell the power to consumers at a fixed cost. However, the market for electricity was dominated by the Enron Corporation, which, with help from other corporations, artificially pushed prices for electricity ever higher. This led to the California electricity crisis that began in 2000 on Path 15, a transmission corridor PG&E built.

With a critical power shortage, rolling blackouts began on January 17, 2001.

Bankruptcy

In 1998, a change in the regulation of California's public utilities, including PG&E, began. The California Public Utility Commission (CPUC) set the rates that PG&E could charge customers and required them to provide as much power as the customers wanted at rates set by the CPUC.

In the summer of 2001 a drought in the northwest states and in California reduced the amount of hydroelectric power available. Usually PG&E could buy "cheap" hydroelectric power under long term contracts with the Bonneville Dam, etc. Drought and delays in approval of new power plants and market manipulation decreased available electric power generation capacity that could be generated in state or bought under long term contracts out of state. Hot weather brought on higher usage, rolling blackouts. etc..

With little excess generating capacity of its own PG&E was forced to buy electricity out of state from suppliers without long term contracts. Because PG&E had to buy additional electricity to meet demand some suppliers took advantage of this requirement and manipulated the market by creating artificial shortages and charged very high electrical rates. The CPUC refused to adjust the allowable electric rates. Unable to change rates and sell electricity to consumers for what it cost them on the open market PG&E started hemorrhaging cash.

PG&E Company (the utility, not the holding company) entered Chapter 11 bankruptcy April 6, 2001. The state of California tried to bail out the utility and provide power to PG&E's 5.1 million customer, under the same rules that required the state to buy electricity at market rate high cost to meet demand and sell it at lower fixed price, the state also lost significant amounts of money.

The crisis cost PG&E and the state somewhere between $40 and $45 billion dollars.^[6] There is some evidence that this crisis played an important part in the eventual recall of California Governor Gray Davis.

PG&E Company, the utility, emerged from bankruptcy in April 2004, after paying $10.2 billion to its hundreds of creditors. As part of the reorganization, PG&E's 5.1 million electricity customers will have to pay above-market prices for several years to cancel the debt.

PG&E Rates

PG&E profits are not dependent upon sales. PG&E rates are set by the California Public Utilities Commission (CPUC). The profit the CPUC allows PG&E to earn is "decoupled" from the amount of natural gas and electricity it sells and its cost of operations.

The capital investments made in natural gas pipelines, power plants, and electric transmission wires and from incentives earned by achieving energy efficiency targets set by the CPUC determine allowable rates. Shareholders invest in PG&E because the utility is allowed by the CPUC a given rate of return that supports the value of its shares and allows for dividend distributions to share holders.

The CPUC has set up the rates for different territories and types of customers. The complicated territory boundaries and "customer definitions" are set by politicians for their "reasons". Like nearly all regulated utilities the free market is not allowed to give incentives for PG&E to be more cost efficient, give better service etc., in hopes of getting more customers or lowering the price the customers pay. It is unclear whether their territorial based rate structure really saves in energy use as it subsidizes those with high gas and electrical usage with higher than average baselines. Those with less than average baselines pay for this subsidy. One good result of the tiered charges are that there is strong incentives to use solar panels, etc. to lower the electrical usage out of the top tiers rate structure. Paying $0.34 per kWh makes an investment in solar panels etc. pay off much sooner.

The prices charged relate to the cost of making, transporting electricity plus an allowed return on invested capital and is adjusted at least annually by the CPUC. New or upgrade facilities have to be approved by the CPUC to get incorporated in the allowable rate structure. The average price of natural gas that PG&E has to pay for, the cost of the distribution system and the cost of long term storage systems is reflected in the bill to the customer. Any additional charges are eventually paid for by the consumer--of course.

This complicated tier schedule has resulted in the average cost of residential electricity in California (2009 data) being $0.1524/kWh--the average in the other states is about $0.1151/kWh. ^[8] Industrial and Commercial users of electricity pay an average of $0.1377/kWh and Agricultural users pay $0.1327/kWh in California. Residential customers consume 31,234 GWh per year. Commercial users consume 32,989 GWh per year, Industrial users 14,804 GWh per year, Agriculture 5,804 GWh per year with the rest (about 1%) an assortment of miscellaneous categories. ^[9]

PG&E has started introducing Prices Per Period (PPP) where the rates vary by the time of day. Usage during peak usage periods costs more and usage at slack periods is at a minimum. This is done to minimize usage during peak usage periods to reduce the cost of adding new peak load generators, brown outs, etc. These plans are well underway with commercial users and will probably soon be introduced to residential customers.

Generation portfolio

PG&E's utility-owned generation portfolio consists an extensive hydroelectric system, one operating nuclear power plant, one operating natural gas-fired power plant, and another gas-fired plant under construction. Two other plants owned by the company have been permanently removed from commercial operation: Humboldt Bay Unit 3 (nuclear) and Hunters Point (fossil).

Hydroelectric

PG&E's hydroelectric portfolio is the largest under private ownership in the United States. Drawing water from approximately 100 reservoirs along 16 river basins, its maximum electric output is 3,896 MW.

The single largest component is the Helms Pumped Storage Project, located at near Sawmill Flat in Fresno County, California. Helms consists of three units, each rated at 404 MW, for a total output of 1,212 MW. The facility operates between Courtright and Wishon reservoirs, alternately draining water from Courtright to produce electricity when demand is high, and pumping it back into Courtright from Wishon when demand is low. The Haas Powerhouse is situated more than 1,000 feet (300 m) inside a solid granite mountain.^[10]

Nuclear

The Diablo Canyon Power Plant, located in Avila Beach, California, is the only operating nuclear asset owned by PG&E. The maximum output of this power plant is 2,240 MWe, provided by two equally sized units. As designed and licensed, it could be expanded to four units, at least doubling its generating capacity.^[11] Over a two-week period in 1981, 1,900 activists were arrested at Diablo Canyon Power Plant. It was the largest arrest in the history of the U.S. anti-nuclear movement.^[12]

The company operated the Humboldt Bay Power Plant, Unit 3 in Eureka, California. It is the oldest commercial nuclear plant in California and its maximum output was 65 MWe. The plant operated for 13 years, until 1976 when it was shut down for seismic retrofitting. New regulations enacted after the Three Mile Island accident, however, rendered the plant unprofitable and it was never restarted. Unit 3 is currently in decommissioning phase and scheduled to be fully dismantled in 2015. The spent nuclear fuel is currently stored at the Independent Spent Fuel Storage Installation (ISFSI) on the plant site because of the United States Department of Energy's failure to find a suitable alternative to storing or disposing of the spent fuel.

Pacific Gas & Electric planned to build the first commercially viable nuclear power plant in the United States at Bodega Bay, a fishing village fifty miles north of San Francisco. The proposal was controversial and conflict with local citizens began in 1958.^[13] In 1963 there was a large demonstration at the site of the proposed Bodega Bay Nuclear Power Plant.^[14] The conflict ended in 1964, with the forced abandonment of plans for the power plant.^[13]

Fossil fuels

Built in 1956, there are two conventional fossil fuel (natural gas/fuel oil) units at Humboldt Bay Power Plant that produce 105 MWe of combined output. These units, along with two 15 MWe Mobile Emergency Power Plants (MEPPs), will be retired in the summer of 2010. The Humboldt Bay Generating Station, built on the same site, is set to take the older power plant's place in the summer of 2010. It will be producing 163 MWe using natural gas for fuel and fuel oil for backup on Wärtsilä Diesel engines. It will employ technology to produce 80 percent fewer ozone precursors and 30 percent less CO₂ than the previous facility. The new design will also reduce water use by eliminating the need for "once-through" cooling.

As part of a settlement with Mirant Services LLC for alleged market manipulations during the 2001 California energy crisis, PG&E took ownership of a partially constructed natural gas unit in Antioch, California. The 530 MW unit, known as the Gateway Generating Station, was completed by PG&E and placed into operation in 2009.

On May 15, 2006, after a long and bitter political battle, PG&E shut down its 48-year-old Hunters Point power plant in San Francisco. At the time of closure, the maximum output of the plant was 170 MW. Residents of the impoverished neighborhood had been pushing for more than a decade to close the plant, claiming it contributed to above average rates of asthma and other ailments.

PG&E broke ground in 2008 on a 660 MW natural gas power plant located in Colusa County. It is expected to begin operation in 2010, and will serve nearly half a million residences using the latest technology and environmental design. The plant will use dry cooling technology to dramatically reduce water usage, and cleaner-burning turbines to reduce CO₂ emissions by 35 percent relative to older plants.^[15]

Solar

On April 1, 2008, PG&E announced contracts to buy three new solar power plants in the Mojave Desert. With an output of 500 MW and options for another 400 MW, the three installations will initially generate enough electricity to power more than 375,000 residences.^[16]

On April 14, 2009 the San Jose Mercury News carried an article by Steve Johnson stating that PG&E is asking the California Public Utilities Commission to approve a project to deliver 200 Megawatts of power to California from space. This method of obtaining electricity from the sun eliminates (mostly) the darkness of night experienced from solar sites on the surface of the earth. According to PG&E spokesman Jonathan Marshall, energy purchase costs are expected to be similar to other renewable energy contracts.

PG&E and the environment

Beginning in the mid-1970s, regulatory and political developments began to push utilities in California away from a traditional business model. In 1976, the California State Legislature amended the Warren-Alquist Act,^[17] which created and gives legal authority to the California Energy Commission, to effectively prohibit the construction of new nuclear power plants. The Environmental Defense Fund (EDF) filed as an intervenor in PG&E's 1978 General Rate Case (GRC), claiming that the company's requests for rate increases were based on unrealistically high projections of load growth. Furthermore, EDF claimed that PG&E could more cost-effectively encourage industrial co-generation and energy efficiency than build more power plants. As a result of EDF's involvement in PG&E's rate cases, the company was eventually fined $50 million by the California Public Utilities Commission for failing to adequately implement energy efficiency programs.

Since Darbee took control of the PG&E Company in 2004, PG&E has aggressively promoted its environmental image through a variety of programs and campaigns.

In the early first decade of the 21st century, the CEO of PG&E Corporation, Peter Darbee, and then-CEO of Pacific Gas & Electric Company, Tom King, publicly announced their support for California Assembly Bill 32, a measure to cap statewide greenhouse gas emissions and a 25% reduction of emissions by 2020. The bill was signed into law by Governor Arnold Schwarzenegger on September 27, 2006.

Incidents

Groundwater contamination in Hinkley, California

The town of Hinkley, California had its groundwater contaminated with hexavalent chromium from a PG&E natural gas compressor plant resulting in a legal case and multi-million dollar settlement. The legal case was documented in Erin Brockovich, a drama film released in 2000.

San Bruno, California explosion

On the evening of September 9, 2010, a suburb of San Francisco, San Bruno, California,exploded when a 30-inch PG&E gas pipeline erupted that killed 8 people, injured dozens and led to 6 missing people. The blast created a crater at the epicenter damaging several homes and was reported by the USGS to have a shock wave similar to a 1.1 magnitude earthquake. Following the event, the company was heavily scrutinized for ignoring the warnings of a state inspector in 2009 failing to provide adequate safety procedures. ^[18] The incident then came under investigation by the National Transportation Safety Board (NTSB). In response to the hundreds of lawsuits on July 2011 following the incident, PG&E tried to shift its responsibility in court to that of the victims claiming negligence upon the victim's part, and therefore PG&E should not be responsible for paying out settlement. ^[19] On August 30, 2011, the NTSB released its findings from the investigation and placed fault upon PG&E for the blast. The report states that the pipeline installed in 1956 that exploded was found inadequate to standards even of that time and thereon. ^[20]

Controversies

Smart meters

In the middle of 2010, PG&E rolled out new electronic meters that replaced traditional analog electric meters. Customers whose meters were replaced with Smart Meters reported seeing their energy bills spike up multiple-folds and accused the company of deliberately inflating their bills, along with questioning the accuracy of the meters. Complaints of PG&E's failing to honor customer's refusal of upgrading their meters also surfaced. Although the contractor that installed the meters would honor these requests, PG&E would eventually come out and replace them despite objections. Subsequently, the California Public Utilities Commission would conduct an investigation^[21] and find that of the 613 Smart Meter field tests, 611 meters were successfully tested and 100% passed Average Registration Accuracy. One meter was found to have serious errors and was malfunctioning on arrival, while another was found to have serious event errors upon installation. These meters were therefore excluded from testing.

Proposition 16

In 2010, PG&E was accused of erasing competition in Proposition 16 that mandated two-thirds of voters approval in order to start or expand local utilities. Critics argued that this would make it harder for a local governments to create their own power utilities, thus effectively establishing a monopoly to allow PG&E to charge their rates as desired. The company was also rebuked for supplying $46 million dollars to support the ballot when opponents raised $100,000 in the campaign. The proposition would eventually be voted down with 52.5% in opposition and 47.5% in favor. ^[22]

Energy deregulation

PG&E has long been referred to as a monopoly. However, California will soon be able to choose between competing companies (i.e. companies competing in an 'open market'). One competitor is ACN, which serves customers in Canada, New York, Maryland, and Pennsylvania with natural gas and electricity.

Bill Gates and Warren Buffett have stated that energy deregulation would lead to the biggest transfer of wealth in history, but make no reference to ACN in this regard. Currently there are no aggregate reports that indicate how much money, if any, people are saving through their subscriptions with ACN. ACN doesn't promise savings for legal reasons and currently offers only gas services.

Tax dodging and lobbying

In December 2011, the non-partisan organization Public Campaign criticized PG&E for spending $79 million on lobbying and not paying any taxes during 2008-2010, instead getting $1 billion in tax rebates, despite making a profit of $4.8 billion and increasing executive pay by 94% to $8.5 million in 2010 for its top 5 executives.^[23]

See also

• Battery-to-grid
• Southern California Edison
• Diablo Canyon Power Plant
• San Diego Gas & Electric

References

Further reading

• "The History of Gas Lighting in San Francisco" Pacific Gas and Electric Magazine Vol. 1 #3 August 1909
• PG&E - A Report on the Companies Environmental Policies and Practices - Council on Economic Priorities - NY April 1994
• Roe, David. Dynamos and Virgins. (New York: Random House, 1984.)

External links

• Official website
• PG&E Corporation
• PG&E Clean Air Transportation Program
• Next100 - A Dialogue on the Next Century of Energy
• PG&E: We Can Do This
• PG&E history timeline
• PG&E Currents