Riling PG&E, San Jose approves its own electric utility, will study feasibility

Project will either move forward or be dropped over the next three years depending on staff inquiries, according to Councilmember David Cohen

San Jose is creating a city-run electric utility in response to Pacific Gas & Electric’s questionable track record and demand for more power supply — a move that could be one of the most significant this year in the South Bay’s energy landscape.

The San Jose City Council unanimously approved the creation of a new department called “San Jose Power” on Tuesday evening, with the goal of one day providing electric lines to future development in the city’s downtown and northern neighborhoods near transportation, housing, and industrial centers.

The city will first investigate the project’s viability, including whether it can produce rates lower than PG&E. The city will also apply to tap into a new transmission line, which is set to go live in 2028 and will serve as the foundation of San Jose Power. Officials insist that the city has no intention of taking over any of PG&E’s existing infrastructure.

However, with potentially tens of millions of dollars at stake, PG&E and the regional electrical workers’ union IBEW 1245 are opposing the plan, claiming that the city lacks the necessary skillset and capital to launch a utility.

However, Councilmember David Cohen sees the value in San Jose Power.

“This represents potential competition for PG&E in new installations,” Cohen said in an interview. “I’m guessing they don’t want competition.” The employees enjoy working for PG&E. They want PG&E to be the only supplier.”

Cohen stated that the city will conduct a three-year study before deciding whether or not to proceed with the utility. If San Jose proceeds with the proposal, it is unclear when it will be able to begin providing power to customers. If the project is successful, it will join Santa Clara and Palo Alto in operating their own utilities. According to city officials, there are over 2,000 publicly owned utilities in the United States, serving one in every seven Americans.

“I still believe we would benefit from having an alternative (utility) for new, large developments,” Cohen stated. “But we would have to make sure, before we move any further, that that would be cheaper for those customers.” On Tuesday, union members expressed their concerns about the utility’s threat to their jobs, though council members promised to include them in future decisions.

According to preliminary estimates, San Jose Power could offer rates that are 15 to 25% lower than PG&E. A municipally owned utility, as opposed to an investor-owned utility such as PG&E, would operate as a nonprofit and would not be subject to state or federal taxes. It would also not be beholden to shareholders. A typical residential customer’s PG&E bill has increased by nearly 42 percent since 2018, from $169.73 to $240.73 per month — three times faster than the Bay Area’s August inflation rate.

The city also hopes to be able to connect new customers to power much more quickly than PG&E. The private utility has come under fire for leaving new infrastructure without power for more than six months. As the city moves toward more renewable energy systems, such as installing electric vehicle chargers, more power capacity is required. According to city officials, state estimates predict that electricity consumption will double by 2045 or 2050.

Major financial concerns have also been raised about PG&E’s financial future, particularly in light of the company’s Chapter 11 bankruptcy filing in 2019 in response to billions of dollars in wildfire liabilities. According to city officials, the utility requested a $7 billion loan from the US Department of Energy to help pay for infrastructure projects that cannot be paid for by ratepayers, and PG&E plans to spend more than 60% of its capital budget on wildfire mitigation.

“As we embark on this exploratory phase, the city does not pretend to have all the answers,” Deputy City Manager Kip Harkness said at Tuesday’s council meeting. “But we have assembled a very strong team to dig into the questions.”

In an interview, Teresa Alvarado, PG&E’s Vice President of the South Bay and Central Coast Region, said the city’s initial debate about San Jose Power over the summer caught the utility off guard and described the project as “unfortunate and perhaps a little misguided.”

“It’s a big step to get into this space,” Alvarado, whose mother is a former city councilmember and county supervisor, said. “The city has many critical needs and issues to address, in our opinion.” And we believe that assuming financial risk and diverting resources away from critical resources is unnecessary.”

Alvarado acknowledged that PG&E has faced its “fair share of challenges” and expressed understanding for the “skepticism” that some may have about the utility company. She does, however, believe that a recent reorganization of the company’s leadership will result in more dependable customer service. According to Alvarado, a total of $1.5 billion will be invested in Santa Clara County over the next decade. For its San Jose operations, the utility company currently employs 1,017 people.

In March, Missouri-based LS Power was granted permission to construct a new transmission line running north to south through San Jose.

One city official called the line’s construction a “once in a hundred-year” opportunity.

“These new lines aren’t built very often,” said Lori Mitchell, director of the city’s Community Energy Department. “It’s important to look at all opportunities.”

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