PG&E, investors nervous over $2.2 billon electric bill By TIM MORAN BEE STAFF WRITER (Published: Monday, September 25, 2000)

Pacific Gas & Electric Co. customers ducked high electricity bills as energy prices soared this summer because of a state-mandated rate freeze.

But the electricity they used was still expensive -- PG&E says it paid $2.2 billion above what it collected from residential customers to supply that power.

State regulators, the Legislature and PG&E are now trying to figure out who ultimately will pay the bill. Depending on how the decision falls, PG&E shareholders, its ratepayers or even taxpayers might wind up with part or all of the tab.

The problem doesn't directly affect customers of the Modesto and Turlock irrigation districts. The districts have their own generating facilities and long-term power contracts that have largely buffered them from the high market prices.

But Wall Street investors, apparently fearful that PG&E's shareholders will be stuck with the $2.2 billion bill, have been downgrading the utility's stock, causing share prices to drop.

PG&E spokesman Jon Tremayne said the utility wants to work with the California Public Utility Commission, the Legislature and the governor "to ensure that the best course of action is taken."

That would include a plan to stabilize rates so that Northern California customers don't see the same huge increases San Diego residents suffered with this summer, Tremayne said.

Tremayne refused to speculate on what kind of solution might be worked out but added, "the $2.2 billion does need to be paid."

Legislative sources say PG&E is looking for either a quick end to the rate freeze, so it can pass the higher electricity costs on to customers, or some type of surcharge to recoup the costs.

In San Diego, where rates more than doubled and in some cases tripled this summer, pending legislation would cap rates and create a $150 million state-funded pool to offset losses San Diego Gas and Electric may suffer. That could set a precedent for a similar taxpayer bail-out for PG&E.

PG&E has collected an estimated $13 billion in transition charges during the deregulation process to recover the cost of investments it made in power plants and contracts that are no longer economical in an open market. Some critics suggest that the $2.2 billion should be taken from that transition- charge account.

The $2.2 billion is PG&E's cost for making sure its customers have electricity, Tremayne argues, rather than a cost of deregulation.

Not a perfect world

PG&E, while still supporting the concept of deregulation, admits there are problems. "It's clear that parts of the market are broken, particularly the wholesale market," Tremayne said.

California utilities sold power plants that produced 7,000 megawatts of electricity to out-of-state companies as part of the deregulation process, Tremayne said.

Those companies now sell the electricity either in California or elsewhere, and there have been accusations of them "gaming" the California market -- withholding energy until prices peak before selling into the market.

State and federal regulators have launched investigations into the allegations of gaming and of excessive profits by power producers.

Consumer groups feel that PG&E's shareholders or the power generators who are selling the power to PG&E should pay the bill.

"Someone is going to have to pay, but pay for what? Excess profits to power generators," said Mindy Spatt, media director for The Utility Reform Network, a San Francisco-based consumer group.

"There hasn't been a change in the cost of wholesale power commensurate with the rate hikes. All it is, is a massive transfer of funds from the consumer to these companies. That's all that's happened," Spatt said.

Surcharges out of the question

Any kind of surcharge to consumers would be a direct violation of the legally mandated rate freeze, which is scheduled to end in March 2002, Spatt said. An early end to the rate freeze would also be disastrous for consumers, adding a couple of hundred dollars per month to electricity bills, she said.

TURN suggests an excess profits tax on the power producers, along with limiting them to a cost-based pricing structure.

"Everybody's worried. But ratepayers have paid enough," said Harvey Rosenfield, a consumer advocate in Santa Monica. "They've overpaid, and they're not going to pay a penny more."

The governor's office, the Legislature and PUC commissioners say they aren't in a hurry to end the current rate freeze.

"There is concern over PG&E's predicament," said State Sen. Debra Bowen, D-Marina Del Rey, who chairs the senate's energy committee. "But no-one is jumping up and down saying, 'Let's subject PG&E's customers to the volatility experienced in San Diego.' I don't think there is a great desire to unleash broken market forces on the rest of California."

Adjustments needed

The PUC, which wrote the first report seven years ago urging deregulation, said in a grim assessment that more problems loom on the horizon unless there is a "mid-course correction."

The summer's woes "represent a precursor of what lies ahead for California's economy over the next 30 months," the PUC said.

The PUC is investigating its options, which could include putting the brakes on deregulation.

The Federal Energy Regulatory Commission is also looking at some form of price caps on wholesale electricity.

In the meantime, PG&E is holding a $2.2 billion bill that makes Wall Street, its shareholders and customers nervous.

Bee wire services contributed to this report.

http://www.modbee.com/metro/story/0,1113,198160,00.html

-- Martin Thompson (mthom1927@aol.com), September 25, 2000

Answers

As a PG & E customer it makes me plenty nervous too.

-- JackW (jpayne@webtv.net), September 25, 2000.

This should be legitimate cause for nervousness. If a big utility like this can get caught for a humongous $2.2 billion in a freeze between their costs and what they are legally permitted to charge, think of how many other utilitis around the country are probably caught in the same vice.

When this all hits the fan I think the cry will be: bankruptcy, anyone?

-- R2D2 (r2d2@earthend.net), September 26, 2000.