PACIFIC GAS & ELECTRIC Co

Trends in Market Demand

The Utility expects customer electric load to increase in coming years primarily as a result of data center usage, electric vehicle adoption, and building electrification. The Utility’s ability to accurately predict the location and pace of electric load growth is limited, due to factors such as extent of customer demand, the policy environment, and macroeconomics.

Load growth can reduce other customers' rates when the incremental revenue for the new load is greater than the incremental cost to serve that load. The degree to which load growth reduces other customers’ rates will depend on the pricing for the new load, which in turn depends on the unit cost of power for the new load, the costs to construct infrastructure to connect new load, the Utility’s cost to serve the new load, and the amount of power used. The Utility is engaged with regulators and other stakeholders on policies, such as cost allocation and rate design frameworks, that support conditions for load growth to improve affordability for customers.

The Utility is also impacted by an increasing quantity of distributed generation and energy storage. The levels of self-generation of electricity by customers (primarily solar installations) and customer enrollment in NEM, which allows self-generating customers employing qualifying renewable resources to receive bill credits at the full retail rate, put upward rate pressure on non-NEM customers. The successor to the NEM tariffs, the Net Billing Tariff (“NBT”), reduces but does not eliminate the upward rate pressure. NEM and NBT customers are required to pay an interconnection fee, utilize time of use rates, and pay certain non-bypassable charges to help fund some of the costs of low income, energy efficiency, and other programs that other customers pay.

The Utility expects customer demand for gas to decrease in the coming years, primarily in response to policies supporting California’s climate goals.

Competitive Conditions in the Electricity Industry

California law allows qualifying non-residential electric customers of IOUs to purchase electricity from energy service providers rather than from the utilities up to certain annual limits specified for each utility. This arrangement is known as DA. In addition, California law permits cities, counties, and certain other public agencies that have qualified to become CCAs to generate or purchase electricity for their local residents and businesses. By law, a CCA can procure electricity for all of its residents and businesses that do not affirmatively elect to continue to receive electricity generated or procured by a utility.

The Utility continues to provide transmission, distribution, metering, and billing services to DA customers at the election of their energy service provider. The CCA customers continue to obtain transmission, distribution, metering, and billing services from the Utility. In addition to collecting charges for transmission, distribution, metering, and billing services that it provides, the Utility collects charges intended to recover the generation-related costs that the Utility incurred on behalf of DA and CCA customers while they were the Utility’s customers. The Utility remains the electricity provider of last resort for these customers.

Further, in some circumstances, governmental entities such as cities and irrigation districts may have authority under the state constitution or state statute to provide retail electric service directly to consumers, in some cases bypassing the Utility’s electric infrastructure entirely. Those entities may also rely upon FERC open access tariffs and Utility infrastructure to deliver their energy for resale at retail to existing or potential new Utility customers. These entities may also seek to acquire the Utility’s transmission or distribution facilities through eminent domain for use in serving electricity at retail to existing or potential new Utility customers. As a result, the Utility could lose customers (residential, commercial, and industrial) or experience limited growth in the applicable municipality. See “Jurisdictions attempt to acquire the Utility’s assets through eminent domain, and third parties attempt to acquire the Utility’s customers by bypassing the Utility’s electric infrastructure system” in Item 1A. Risk Factors. It is also expected that some publicly-owned utilities will build new or duplicate transmission or distribution facilities to serve existing or potential new Utility customers, bypassing the Utility’s electric infrastructure. In some instances, microgrid formation is a key factor in a community’s choice to engage governmental entities. Some private companies have also called for changes in law that could allow those companies to privately serve electricity to retail customers without being regulated by the CPUC as public utilities.

The effect of such types of retail competition generally is to reduce the number of utility customers, leading to decreased growth or a reduction in the Utility’s rate base.

The Utility also competes for the opportunity to develop and construct certain types of electric transmission facilities within, or interconnected to, its service area through a competitive bidding process managed by the CAISO.

For risks in connection with increasing competition, see Item 1A. Risk Factors.

Competitive Conditions in the Natural Gas Industry

The Utility competes with other natural gas pipeline companies for customers transporting natural gas into the southern California market on the basis of transportation rates, access to competitively priced supplies of natural gas, and the quality and reliability of transportation services. The Utility also competes for storage services with other third-party storage providers, primarily in Northern California.