While Pacific Gas and Electric Co. (PG&E) has proven to be a "solid, defensive" investment play in the midst of national and global economic troubles, California's deep budget crisis raises new challenges, according to PG&E's CEO Peter Darbee.
However, he reminded portfolio managers last Wednesday at the Sanford Bernstein Strategic Decision Conference in New York City that California regulators have worked hard for the past seven years to inject more certainty in the state's oversight of its energy utilities.
"Frankly, the [California Public Utilities Commission] has worked assiduously to accomplish this," said Darbee, who cited the capital markets' reaction to the California private-sector utilities as proof of that regulatory success. "During the credit meltdown of last fall, our company performed quite well, and in fact we have raised more than $2 billion in capital since the meltdown began."
Within this framework and with the Obama administration emphasis on climate change, Darbee said much of the nation is looking to California as the model for how to respond. "So whatever comes [out of Congress on climate change] ought to be very manageable for our company." He called PG&E a "leader" on both climate change and energy efficiency.
In response to an analyst's question on the current state fiscal crisis impact on the utility, Darbee said "without question there are impacts," but for the most part he downplayed them. A "hiatus" in the state paying its utility bills overall could certainly have an impact, he said, but in the assessment of company CFO Christopher Johns "it is a manageable issue."
"As I understand it, the risk would be a delay without collecting any interest on the amounts due," Darbee said. "In the end, the right solution will be one where taxes are increased and expenses are cut, so there is the chance our taxes will go up, but in the case of government-mandated issues, we are able to wrap those into increased rates. This would be true, for example, if the state mandates a move away from [water-based] wet cooling to dry [air] cooling in power plants."
Darbee noted that the state's major utility companies have not been asked to cut back on capital programs, and that "makes sense," given the push for new jobs as part of the economic recovery.
In response to another question on the federal climate change legislation's potential impact on PG&E rates, Darbee, who emphasized that the company is supporting a national cap-and-trade system, said his utility's analysis indicates that the rate impact in the initial years would be an increase of less than 1%.
In addition, he said, any benefits gained from the sale of emissions allocations, or credits, would be flowed back to the utility's retail ratepayers.
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