READER’S EDITORIAL: PRICE GOUGING BY SDG&E—RESULTS OF DEREGULATING A MONOPOLY

By Joel A. Harrison

October 1, 2010 (San Diego) -- I recently paid SDG&E $1,599 for a job my plumber would have charged between $400 and $500 to do. The job involved relocating my gas meter approximately nine feet from its location under my bedroom window.

I decided to replace the window with a door and steps as an emergency exit, but couldn’t do this as long as the gas meter was in the way. SDG&E told me that its current safety code prohibits gas meters from being under windows, but my home was “grandfathered” in -- and they were under no obligation to move the meter.

I was responsible for digging the 3’ by 3’ trench for SDG&E to access the pipe and an additional 10’ trench to remove the old pipe, plus backfilling the trenches and repairing the patio. My plumber added the new pipe under the house. I also paid $120 for the city permit. Two SDG&E workers spent less than one hour cutting the pipe, adding less than two feet of new pipe and connecting the riser. Another SDG&E employee spent about 40 minutes connecting the gas meter to the riser and new pipes installed by my plumber, plus relighting pilot lights to my appliances.

Ten years ago, both Houses of our State legislature and both political parties unanimously voted to deregulate the Public Utilities industry. We were promised that market competition would lead to lower rates and better service. Instead, rates skyrocketed and we faced manufactured brown-outs and black-outs in a never-ending race to gouge the public.

Recordings of telephone conversations between traders discovered them laughing at traffic accidents caused by non-functioning traffic lights due to brown-outs. For them, after a few accidents, people would pay anything for electricity. People on fixed incomes couldn’t afford heating and air-conditioning. Small businesses, especially Ma and Pa grocery stores, couldn’t afford the electricity for their refrigerators and freezers. Cities were hard-pressed, having to cut services and school funding in order to pay their electric bills. Yet the industry just kept pushing for ever increasing profits. Even potential injuries and deaths from traffic accidents or heat or cold didn’t bother them.

Finally, the State of California partially re-regulated the industry. Rate increases for gas and electricity must be approved by the CPUC (California Public Utilities Commission)--but not other services.

SDG&E maintains a monopoly on services such as the relocation of gas meters (SDG&E Rule 16, section F, subsection b: “Applicant Convenience: Any relocation or rearrangement of Utility's existing Service Facilities at the request of Applicant (aesthetics, building additions, remodeling, etc.) and agreed upon by utility, shall be performed in accordance with Section D above except that Applicant shall pay utility its total estimated costs.”). The CPUC has no jurisdiction.

Monopolies are anathema to free capitalistic market economies. As any Introduction to Economics textbook shows, monopolies set prices far in excess of what they would be in a competitive market, thus incurring obscene profits. In such situations, government regulations are absolutely necessary to protect the public from predatory pricing.

The original invoice I received from SDG&E simply listed the price as $1,599. With the help of the CPUC I received a partial “breakdown” of the costs, not including number of hours or workers.

We shall install approximately 5-10 feet of gas service pipe, and remove approximately 10-15 feet of gas service pipe, install connections and reset the gas meter under the provision of Rule 16. The applicant shall provide a clear path, the trench, backfill and any concrete/pavement repair from the point of interception to the new meter location. Installation:

Installation:
Material: $39.28
Labor: $546.93
Equip/trans: $89.74
Administration: $164.05
Total $839.99

Removal:
Labor: $542.10
Equip/trans: $68.48
Administration: $148.19
Total $758.77
Note: We did not charge you for the actual pipe removal
Total Amount $1,598.76

Though SDG&E stated that they were not charging me for the actual pipe removal, I made sure that my plumber removed the old pipe, fittings, etc.

I had nothing to lose, so I contacted the CPUC. The response was: “I have received your e-mail and consulted with my coworker who looked at their explanation of charge. I was told the charge is legitimate. He states utilities charge for everything including bringing in the trucks and other equipment and also for taking all the equipment back. Basically, they charge for every little thing. I was also told that we don't have jurisdiction over this issue. I can go ahead and send this complaint over to SDGE for their response but they probably send us a note, letting us know that the complaint is non jurisdictional.”

The installation charge of $840 was double what my plumber would have charged me to do the job. I can’t imagine any plumber trying to also charge for putting his tools back in his truck and driving home. This is what happens when we deregulate a monopoly, they gouge the public on charges that would never be incurred where there was market competition. From my inquiries, I also found out that SDG&E increased their charge for relocating a gas meter a couple of years ago from about $800 and I also found out that another SEMPRA company, Southern California Gas, currently charges about $800.

A recent article listed the CEO of SEMPRA, SDG&E’s parent company receiving over $20 million in compensation. People are up in arms over recent revelations of politicians and some city and county employees receiving exorbitant incomes paid for by the taxpayers, but why is there not any outrage at $20 million also paid out of our pockets to a monopoly? I don’t have the resources, but I believe it would be of public interest to know the following:

1. Total income, in inflation-adjusted dollars, of SEMPRA CEO, SDG&E CEO, and 10 highest paid SDG&E executives for 1998 and 1999 (prior to deregulation) and for 2008 and 2009;
 

2. Dividends, in inflation-adjusted dollars, paid to stockholders for 1998 and 1999 and for 2008 and 2009;
 

3. Percentage of gross revenues devoted to infrastructure, repair and development, for 1998 and 1999 and 2008 and 2009.

Ten years ago, many areas in California experienced rolling brown-outs and black-outs.  But several cities did not.  Among these were Los Angeles and Sacramento--because they own their own electric companies.

In fact, Los Angeles was able to earn money for its taxpayers by selling excess electricity during the crisis. JD Powers several times gave the Sacramento Municipal Utility District its highest score for customer satisfaction. It would be interesting to find out how much the CEOs for the Los Angeles and Sacramento publicly owned utilities receive in compensation and a comparison of electric rates for Los Angeles, Sacramento, and San Diego. While we are paying a monopoly so that SEMPRA’s CEO can make $20 million per year, people in Los Angeles and Sacramento are paying their respective utilities which in turn contributes to their fire and police departments, and other city services.

While I am a strong believer in markets for consumer goods, public utilities are natural monopolies. Regardless of their advantages, many of our citizens would probably be against San Diego city or county governments taking over the utilities and, perhaps, given all the corruption scandals we have experienced in San Diego, they may be right; but given SDG&E is a monopoly, it is TIME TO TOTALLY RE-REGULATE THEM! Monopolies are predatory by nature and need to be regulated.

UCAN (Utility Consumers' Action Network)

I contacted UCAN, of which I’ve been a member for 10 years, about SDG&E’s exorbitant charges. I discussed my case with someone named Phil. He said they considered this a priority/important issue and asked if I could delay scheduling the job for two months while UCAN worked on it. Shortly thereafter, I received from Phil an e-mail with SDG&E’s Rule 15 GAS MAIN EXTENSIONS attached. Under Section 3 subsection b it states:

“Applicant-Performed Work: Applicant may elect to install that portion of the new extension normally installed by the utility, in accordance with the utility's design and specifications, using qualified contractors. (See Section G., Applicant Installation) Section G. states: “APPLICANT INSTALLATION OPTION
“1. Competitive Bidding: When Applicant selects competitive bidding, the extension may be
installed by Applicant's qualified contractor or subcontractor in accordance with the utility's
design and specifications.”

In addition, Rule 15 under Section C EXTENSION ALLOWANCES subsection 3. Residential Allowances states: “The allowance for Distribution Main Extensions, Service Extensions, or a combination thereof, for Permanent Residential Service on a per-unit basis, is as follows:
Water Heating $585
Space Heating $482
Oven/Range $50
Dryer Stub $132”

UCAN suggested I get bids from independent plumbers for the job--but each plumber told me they were not allowed to relocate the gas meter. I phoned UCAN several times about this and also asked whether I was eligible for the “Residential Allowances,” which, since I had all four of the above listed appliances, would have given me a total of $1,249, thus reducing my cost from $1,599 to $350.

After a couple of months, I contacted Phil who told me he was no longer handling my case; it had been given to Michael Slomanson, who promised me he would work on it. Over several months I spoke with him and also sent him several e-mails. I explained that plumbers were telling me they weren’t allowed to relocate the gas meter and continuously asked if I were eligible for the “Residential Allowances.” After several months I phoned to speak with Mr. Slomanson only to be told he was no longer with UCAN. No one notified me about this.

I spoke with Sue Macomber at UCAN, who said she would bring this to the attention of Michael Shames, Director of UCAN. Later she phoned me with the numbers of several plumbers with whom she had spoken. She wanted me to arrange for them to come to my house and give me a job estimate. I spoke with them and again was told that they were not allowed to relocate the gas meter. By this time I was getting angry. Eight months had gone by, SDG&E had my $1,599, and as far as I could tell no progress had been made by UCAN. Three different people had “handled” my case without my being informed and though I had several times e-mailed them asking about my eligibility for the “Residential Allowances,” I had not received an answer.

On my own, I found out about Southern California Gas charging about $800 for relocating a gas meter. Finally, I spoke directly with two different SDG&E supervisors who told me about SDG&E’s increasing/doubling the cost a couple of years ago. They explained that Rule 15 does not apply to relocation of gas meters and e-mailed me Rule 16 which clearly states that only SDG&E can relocate a gas meter, so not only could I not get competitive bidding; but was not eligible for the “Residential Allowances.” In other words, UCAN, with 25 years of experience supposedly dealing with public utilities, had wasted my time.

I sent one final e-mail to Michael Shames explaining what I had learned and my frustration with his organization. This time I received a reply from Mr. Shames:

"Just to make sure that you and I are on the same page as far as facts are concerned, my staff has done a tremendous amount of leg work on this case. I've reviewed the file and seen that they've called numerous contractors on your behalf, intervened with SDG&E and read each of the regulations that you asked them to read as well as many about which you weren't even aware. And I've reviewed the extensive set of e-mails between you and them. Your suggestion that they've done nothing and made you do all of the work suggests to me that you have difficulty separating fact from fiction. And your suggestion that UCAN staff is "not even responding to simple questions" is simply false. Plain and simple.

The facts appear to be that SDG&E is overcharging you for relocating your gas meter. It is this seeming fact that compelled me to expressly direct the staff to take on much of the work in your case. And I plan to continue to investigate this matter in SDG&E's upcoming General Rate case. I think you have raised a very important point and I don't plan to let SDG&E off of the hook.

Another important fact is that while SDG&E has a monopoly on gas meter work it is limited to the actual relocation of the meter itself. Private contractors can do all of the trenching, pipe work, prep work and wrap-up. My staff had been expecting that you'd be able to secure a bid (or two) from contractors to do all of the work except for the actual meter relocation. But from reviewing the correspondence, it appears that you've not provided my staff with contractor bidding quotes for this specific portion of the work. You'll need to do that to move forward with your complaint, if you choose to lodge one.

Finally, as to your question about the gas construction allowance, I've not been able to find any legal justification for your qualifying for the allowance that you cited. Nor have I found any evidence that Mr. Slomanson told you otherwise. So I cannot verify your alleged fact.

From this point on, I've directed my staff to stop assisting you in this matter. I do believe that you have a legitimate basis to challenge SDG&E's construction quote. One option you have is to file a formal complaint with the PUC and have SDG&E justify their price quote to a PUC administrative law judge. But in doing so, you will need to do more leg work and you'll need to get additional information.

I had been prepared to have my staff support you in such a complaint case but am no longer willing to do so due to a clear lack of appreciation for their work and obvious communication issues. Perhaps you had expected more from us, but I definitely expect that anyone who deals with my staff do so with integrity and an appreciation of real facts, not wishful ones. We hold no negative feelings against you; we just don't believe that you can work with us in the manner in which we require. So to answer your very specific question as succinctly as possible in your words: yes you are on your own. We have done as much as we can do for you in this matter."

As I explained, three different people handled my case without me being told. I was asked in the beginning if I could delay scheduling the project for two months and eight months had gone by. I was not kept informed as to any progress being made. I did explain over the phone that I had already received estimates for the trenching and extension of the gas pipe under my house; but still don’t understand what relevance this has. In fact, the project plan I received from SDG&E which I shared with UCAN, specifically stated that I was responsible for these.

As noted, the entire job took SDG&E less than two hours and my plumber would have charged one-fourth of what SDG&E did. And the “simple question” they did not respond to after several e-mail inquiries was my eligibility for the “Residential Allowances.” Mr. Shames wrote: “Finally, as to your question about the gas construction allowance, I've not been able to find any legal justification for your qualifying for the allowance that you cited.” He calls it a “gas construction allowance,” not even getting the terminology correct and misses the point that Rule 15 does not apply to relocating a gas meter.

Maybe this is indicative of how he and his subordinates pay attention to detail. I did ask Mr. Slomanson when he was handling my case if he thought I was eligible for the allowance. He skimmed Rule 15 and said he thought I was; but he would need to further investigate it before giving a definitive answer. Mr. Shames could easily have contacted Mr. Slomanson; but prefers instead to impugn my honesty by writing “I cannot verify your alleged fact.”

The CPUC has made it quite clear that it does not have jurisdiction over services such as the relocation of a gas meter. Mr. Shames seems unaware of this. If his staff made numerous phone calls for me, I was not informed. In addition, as I explained above, I already had estimates for the work from three different plumbers; but since this was irrelevant, they could have phoned every plumber in San Diego County and I would not consider that making calls on my behalf. Instead of just admitting they had dropped the ball, Mr. Shames ends his e-mail by attacking my reality-testing and integrity: “Perhaps you had expected more from us, but I definitely expect that anyone who deals with my staff do so with integrity and an appreciation of real facts, not wishful ones.”

I don’t know which is worse, with deregulation being subject to price-gouging by a predatory monopoly corporation or finding out that a consumer advocacy group that I believed in rather than helping me wasted my time and impugned my integrity. I won’t be renewing my membership. With regard to UCAN, I can’t help but quoting from one of my favorite books, “Alice in Wonderland.” It’s the Mad Tea Party:

“Take some more tea,” the March Hare said to Alice, very earnestly. “I’ve had nothing yet,” Alice replied in an offended tone: “so I can’t take more.”

So much for Mr. Shames “We have done as much as we can do for you in this matter.”

The moral of the story is that with a predatory monopoly corporation, the only protection the consumer can count on is strong government regulations and enforcement. RE-REGULATE OUR PUBLIC UTILITIES!

Joel A. Harrison, PhD, MPH, a native San Diegan whose family has been here since 1936, is a retired epidemiologist with a long time interest in social causes.  The opinions expressed in this editorial reflect the views of its author and do not necessarily reflect the views of East County Magazine. If you wish to submit an editorial for consideration, contact editor@eastcountymagazine.org.