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, according to Councilmember David Cohen

In a major shake-up of the South Bay’s energy landscape, the San Jose City Council on Tuesday officially approved the creation of a city-run electric utility in response to Pacific Gas & Electric’s questionable track record and demand for more power supply — a decision that could become one of its most consequential this year.

San Jose councilmembers voted unanimously to establish a new department called “San Jose Power” that may one day provide electric lines to future development in the city’s downtown and northern neighborhoods around transportation, housing and industrial centers.

The city will first study the project’s feasibility, including whether it can produce rates cheaper than PG&E. As part of Tuesday’s vote, the city will also apply to tap into a new transmission line that’s set to come online in 2028 and become the foundation of the San Jose Power. Officials maintain that the city isn’t looking to take over any of PG&E’s existing infrastructure.

But with potentially tens to hundreds of millions of dollars on the line, the plan is getting major pushback from PG&E and the regional electrical workers’ union IBEW 1245, which argue that the city doesn’t have the required skillset or capital to get a utility up and running.

But Councilmember David Cohen said he sees the benefit in San Jose Power.

“This is potential competition for PG&E in new installations,” Cohen said in an interview. “I assume they don’t want competition. The workers like working for PG&E. They want PG&E to be the sole provider.”

Cohen said the city’s study period will last around three years before deciding to move ahead with the utility or nix the project. It’s not immediately clear when, if San Jose marches forward with the proposal, it will be able to start providing power to customers. If the project comes to fruition, it will join Santa Clara and Palo Alto, which operate their own utilities. According to city officials, over 2,000 publicly owned utilities exist nationwide, serving one in seven Americans.

“I still believe we would benefit from having an alternative (utility) for new, large developments,” said Cohen. “But we would have to make sure, before we move any further, that that would be cheaper for those customers.” On Tuesday, union members also expressed concerns over jobs being threatened by the utility, though councilmembers promised to include them in decisions going forward.

Early estimates claim San Jose Power could provide rates between 15 and 25 percent cheaper than PG&E. A municipal-owned utility, as opposed to an investor-owned one like PG&E, would operate as a nonprofit and not be required to pay state or federal taxes. It also wouldn’t be beholden to shareholders. Since 2018, a typical residential customer’s PG&E bill has increased by nearly 42 percent, from $169.73 to $240.73 a month — three times faster than the inflation rate in the Bay Area as of August.

The city also is hoping that it will be able to connect new customers to power much faster than PG&E can. The private utility has received heated criticism for leaving new infrastructure waiting over half a year to get hooked up to power. As the city shifts towards more renewable energy systems, like installing electrical vehicle chargers, there’s a need to increase power capacity. State estimates expect the doubling of electricity usage by 2045 or 2050, said city officials.

Major financial questions are also being raised about PG&E’s financial future, especially in light of a Chapter 11 bankruptcy filing in 2019 after facing billions in liabilities from wildfires. The utility requested a $7 billion loan from the U.S. Department of Energy to help pay for infrastructure projects that cannot be paid for by ratepayers, city officials explained on Tuesday, and PG&E is set to spend more than 60 percent of its capital budget on wildfire mitigation.

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

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

“It’s a real big leap to enter into this space,” said Alvarado, whose mother is a former city councilmember and county supervisor. “To us, the city has many critical needs and issues to address. And we believe that taking on the financial risk and shifting resources away from those critical resources is unnecessary.”

Alvarado admitted that PG&E has faced its “share of challenges” and said she understood the “skepticism” some may have about the utility company. However, she maintains that a recent revamping of the company’s leadership will translate into more reliable customer service. A total of $1.5 billion will be invested over the next decade in Santa Clara County, according to Alvarado. The utility company currently employs 1,017 people for San Jose operations.

In March, the Missouri-based LS Power was approved to build a new transmission line running north to south through San Jose. The line will offer increased electrical capacity for PG&E across the

One city official described the build-out of the line as a “once in a hundred-year” opportunity.

“These new lines do not get built often,” said Lori Mitchell, who oversees the city’s Community Energy Department. “It’s important to look at all opportunities.”