PG&E to seek extra charge: PUC hears power issue today

By Carrie Peyton Bee Staff Writer (Published Dec. 27, 2000)

Pacific Gas and Electric Co. on Tuesday suggested adding a surcharge to electric bills for the next 10 years to pay for just one year's turmoil in wholesale electricity markets.

It also backed away from years of efforts to sell its hydroelectric plants, offering instead to keep them temporarily, boost their worth on paper to $2.8 billion and collect a 12.5 percent return on that figure as part of new, higher electric rates.

Consumer groups are expected to strongly contest such efforts this morning in San Francisco, when two days of hearings begin into whether regulators should lift a rate freeze and authorize new charges for millions of Californians.

The state Public Utilities Commission will hear from PG&E, Southern California Edison and power users big and small who are disputing how much consumers should pay for the disarray spawned by electric deregulation.

PG&E's power costs will average 45 cents a kilowatt hour in December, at a time when it can only bill customers 5.4 cents a kilowatt hour for the electricity portion of their bills, utility lawyers said in documents filed with the PUC late Tuesday.

They predicted PG&E will run out of cash in the next three to seven weeks because of the "frightening" explosion in wholesale power costs.

Unless the PUC raises rates soon and promises that more rate increases will come later, PG&E said, its credit rating will sink so low that it won't be able to borrow enough money to keep paying for electricity.

The utility also presented regulators with estimates about future power costs that, it said, would require rate increases of 23 percent to 66 percent.

Meanwhile, Gov. Gray Davis said he sought advice on dealing with California's energy crisis during a two-hour private meeting with Federal Reserve Chairman Alan Greenspan and Treasury Secretary Lawrence Summers in Washington on Tuesday, but did not ask them to intervene with utility companies' creditors.

"Suffice it to say they agreed that this is one of the more intractable problems they've seen in the short term, but we will get through this with more conservation and bringing more supply on line," Davis said, appearing on PBS' "Nightly Business Report."

Davis again blamed power generators for exacerbating the crisis by "gaming and marketeering the system," and said Californians "are the victims of a failed experiment."

"This is a serious problem, but we will manage it if everyone does their part," Davis said. "I need some help from the generators -- they can't be charging 800 or 900 percent the cost of electricity. We need more conservation than we've had before, and we need to accelerate additional supply."

He said power generators should realize that if deregulation fails in California, "deregulation is over in America. They have a vested interest in seeing that deregulation down the road can work without sacrificing the California economy that is now contributing disproportionately to the nation's growth."

The Democratic governor would not comment on proposed rate increases before the PUC.

Last week, the PUC ordered the emergency rate hearings that will open today, and said it hopes to make a decision on rates on Jan. 4.

While the fiercest battle will be fought over how high rates could go, secondary debates began erupting almost immediately over an issue that could be even more important for some consumers -- whose rates will go up the most.

Should people who use only a few hundred kilowatt hours a month be spared?

Should power-guzzling homes be forced onto programs that automatically shut off their air conditioners or bill them tens of times higher for electricity used at 4 p.m. than they pay for it at 4 a.m?

Should businesses shoulder most of the extra costs while residents get special protection from price swings?

Should low-income discounts be expanded?

Those are among the issues being raised by ratepayer groups in documents filed with regulators since last Thursday's call for emergency hearings.

Millions of dollars can ride on each arcane rate decision that regulators usually take months to mull, after hearing from scores of accountants and lawyers in quasi-legal rate proceedings before an administrative law judge.

"January 4 is a very ambitious date for any kind of final decision," said Michael Shames, head of the Utility Consumers Action Network.

Shames has been urging Davis to support only a temporary loan or other interim measure to reassure utility lenders without including indefinite higher rates.

The PUC's semi-autonomous Office of Ratepayer Advocates will recommend this morning that small consumers should have their rates raised temporarily by 8 percent, with the money tracked through a special account.

Once more detailed bookkeeping is done, it could turn out that no rate increase is needed, and the money could be refunded to consumers through lower rates for the next six months, said ORA senior manager David Morse.

Big companies would pay higher rates under that proposal and several others, something that worries the California Industrial Users coalition.

"All you're doing is making them pass costs through in what they charge for whatever products they make. It eventually filters back to the consumers anyway," said the group's attorney, Dan Carroll.

Or worse, Carroll said, consumers balk at the higher prices and the affected companies go out of business, or leave the state.

Many consumer groups contend that PG&E and Edison, California's two biggest utilities, should not be allowed to raise rates at all, after collecting an estimated $18 billion in extra payments from customers to fund a transition to electric competition.

PG&E and Edison have sued the PUC in federal court, seeking to force it to let them pass along all their wholesale electricity costs to customers.

But consumer groups contend that higher electric rates would violate the deal cut by AB 1890, which restructured the state's electric industry in 1996.

The PUC argues that it has the right to keep rates "just and reasonable," even if that means forbidding utilities from passing costs to customers.

The threat of that being decided by the courts as early as next month pervades today's debate, with the PUC's own consumer advocates office arguing that any hike should come with a tradeoff -- the utilities should abandon their federal lawsuits.

Bee Deputy Capitol Bureau Chief Dan Smith contributed to this story.

http://www.capitolalert.com/news/capalert01_20001227.html

-- Cave Man (caves@are.us), December 27, 2000

Answers

Davis Seeks Greenspan's Energy Advice UNPRECEDENTED: State's surging costs send governor to Fed chairman

Louis Freedberg, Chronicle Washington Bureau Wednesday, December 27, 2000

Seeking federal advice on how to avoid the collapse of California's public utility companies, Gov. Gray Davis flew to Washington yesterday for an unprecedented meeting with Federal Reserve Board Chairman Alan Greenspan.

The two-hour meeting was also attended by Treasury Secretary Lawrence Summers, an indication of the deepening concern over the potential effect on the national economy of California's power crisis.

"They agreed it was one of the most intractable problems they have seen in the short term," Davis said after the meeting.

Pacific Gas and Electric Co. and Southern California Edison have suffered $8 billion in losses because of the soaring costs of electricity and their inability to raise consumer rates.

The utilities must come up with $2 billion in the next two months to pay off short-term debts. If the utilities default on their IOUs, that could lead to a default on their longer-term debts of $20 billion.

Davis said he did not ask Greenspan to intervene with the utility companies' creditors. "This was more of a situation where I explained the problem and sought their advice and guidance," he said. "There are no magic bullets. We just have to work our way through this problem."

But economists were puzzled about what, if anything, the Federal Reserve could do to help resolve the crisis.

"The Federal Reserve is clearly concerned about the economic slowdown going on in the United States . . . but it is difficult for me to see that it could play any official role in intervening in California's energy situation, or in the affairs of a private, nonfinancial institution," said Janet Yellen, an economist at the University of California at Berkeley's Haas School of Business.

Yellen was a member of the Board of Governors of the Federal Reserve System from 1994 to 1997, and then served as chairman of the president's Council of Economic Advisers until 1999.

To help pay off their debts, the utilities are seeking a rate increase of at least 20 percent, while state officials have been pushing for an increase of 10 percent.

The California Public Utilities Commission will hold an emergency meeting this morning in San Francisco on whether to lift the existing freeze on electricity rates and, if so, to determine what the new rates should be. A vote is not expected until Jan. 4 at the earliest.

Davis and other elected officials have expressed growing concerns that the two utilities might go bankrupt.

"If these companies do go bankrupt, and stop service, there is no one to pick it up," said Sen. Dianne Feinstein, D-Calif., after a meeting with Davis and Energy Secretary Bill Richardson in Washington last week. "In addition, these are companies that employ hundreds of thousands of people throughout the state, so it could have a very dramatic ripple effect on the economy."

At that same meeting, Davis said the utilities were "more victim than culprit in this situation . . . "

The Federal Reserve has been reluctant to get involved directly in financial crises, even in ones that threatened to cause chaos in financial markets. But it has helped to restructure failing banks or other financial institutions.

In July 1998, the Federal Reserve Bank of New York brought together a group of lenders who came up with a $3.6 billion bailout package of Long-Term Capital Management, a teetering hedge fund that threatened to shake world financial markets.

It is conceivable that the Federal Reserve might play a similar role in coming up with a bailout plan for California's utilities. But insiders say Greenspan was unhappy with the New York Federal Reserve for getting involved in Long-Term Capital Management and is likely to be even more reluctant to meddle in California's utility crisis.

The immediate challenge is to make sure that influential financial rating services don't lower the utilities' credit ratings. If that occurred, the utilities would almost certainly not be able to meet their short-term debt obligations.

In a reprieve for the utilities, the Standard and Poors rating service decided on Friday not to change its ratings for now, citing the state PUC's efforts to send the "appropriate signals to the financial community" and the companies' cost-cutting measures.

But both PG&E and Edison remain on an S&P "credit watch," which makes it more difficult for them to meet their debt obligations. "Both entities are facing imminent default unless California regulators and politicians can immediately craft a viable financial solution that restores liquidity to the utilities," S&P warned potential investors last week.

Davis yesterday derided California's venture into deregulating its electricity supply in his strongest terms yet, describing it as "a colossal failure."

But he said he was confident that California could "manage its way through the problem by increasing conservation and supply. Already, we have six plants under construction, which equals the same total number of plants permitted and constructed in the last sixteen years."

The governor said electricity generators, which are charging prices 100 times more than last year's average, had a strong interest in helping California survive what he called "this transitional period."

"If deregulation fails in California, it is dead in America," he said.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000 /12/27/MN5114.DTL

-- Cave Man (caves@are.us), December 27, 2000.

Around the clock news from Reuters December 27, 2000 UPDATE 1-SoCal Edison can't syndicate loan, sell debt

NEW YORK (Reuters) - Electric utility Southern California Edison, facing bankruptcy unless California approves a big rate increase, said Wednesday it has been shut out of the bank loan and short-term debt markets.

The utility, a unit of Edison International, said in a regulatory filing it has been unable to syndicate a $1 billion revolving credit line and cannot sell commercial paper and other short-term debt securities.

It also said it has been forced to repurchase more than $419 million of pollution control bonds that could not be remarketed because of the utility's "precarious credit condition." It said it may eventually have to buy back another $131 million.

SoCal Edison's disclosures to the Securities and Exchange Commission, came as the California Public Utilities Commission began hearings to address the state's power crisis. A decision from the Commission is expected Jan. 4.

The crisis threatens to throw SoCal Edison and Pacific Gas & Electric Co., a unit of PG&E Corp., into bankruptcy and leave parts of the state subject to blackouts.

SoCal Edison has asked for an immediate 30 percent rate hike, while Pacific G&E has asked for a 26 percent hike. The units face $8 billion in combined losses.

On Wednesday California Gov. Gray Davis, a Democrat, urged the U.S. Energy Department to order power generators to continue to sell power to the utilities through Jan. 9.

Davis, who Tuesday accused the generators of gouging the utilities by forcing them to pay 800 percent to 900 percent above their costs, was speaking in Washington Wednesday after a meeting about the crisis with President Bill Clinton.

Edison International shares traded late Wednesday on the New York Stock Exchange at $15-1/2, down 9/16, or 3.5 percent. They have fallen 32 percent this month, after closing November 30 at $22-15/16.

PG&E shares traded late Wednesday at $19-1/2, down 5/16, or 1/6 percent. They have fallen 29 percent this month, after closing Nov. 30 at $27-7/16.

SoCal Edison and Pacific G&E are subject to a state rate freeze that has left them unable to bill consumers enough to pay for big increases in their wholesale power costs. SoCal Edison has asked for an immediate 30 percent rate increase.

In the filing, SoCal Edison warned that any commission action may not address its credit-worthiness, its ability to provide continuous service, and its ability to avoid further job cuts.

Last Friday, Edison International said it would eliminate its dividend and cut 400 jobs. SoCal Edison said in the filing that its lenders on Dec. 21 extended it funds to repurchase the pollution control bonds. It also said that a day earlier, its lenders reserved their rights to declare a default, and asked SoCal Edison to provide evidence that it can pay its debts as they come due.

Leading credit rating agencies each said Friday that they would take a wait-and-see attitude on the commission's hearings, and hold off on cutting their medium investment-grade ratings for the utilities and their parents.

One agency, Standard & Poor's, warned its ratings may fall to low junk grades unless the state affords adequate relief.

Investors have already jumped ahead, beating down the existing bonds of Pacific G&E and SoCal Edison such that they are now quoted by price, like junk bonds, rather than by their yield premium relative to similar maturity U.S. Treasuries, like investment-grade bonds.

http://www.canoe.ca/ReutersNews/ENERGY-SOCALED-DEBT.html

-- Cave Man (caves@are.us), December 27, 2000.

I am sorry, but I just cannot bring myself to feel any pity for California.... You reap what you sow, dudes!! Why should the rest of the west have to foot the bill for YOUR piss poor planning and even worse judgement??? Fer christ sakes, you're all a bunch of lemmings running for that cliff and you act surprised when the cliff is really there! Next time you people get an idea, STOP and ask someone (anyone!) outside of california, to see if it is truly a good idea or if it is another one of your infamous brain farts, okay?

-- West is Best (forget@california.com), December 27, 2000.

West,

Feel sorry for us? There is no need to. What you see here in California will be visited upon you next summer. Why you ask? It's called natural gas and there will be very little of it to run peaking plants next summer. Natural gas is the energy of choice because it burns so clean. The majority of power plants built in recent years burn natural gas.

-- Cave Man (caves@are.us), December 27, 2000.

Feel sorry for us? There is no need to. What you see here in California will be visited upon you next summer=================

Oh, silly me.... here I thought it was because of de-regulation!!! That the morons who run your state were so gun - ho for de-reg that they forgot to see that they haven't built a power plant in california in over a decade even though the growth rate in california has kept at a torrid pace for that decade. Your argument that we are running out of natural gas is hollow, we'd ALL be feeling it now... no other state is having the issues california is. I was in Phoenix the week before Christmas, no talk of rolling blackouts, no turning off of holiday lights, nothing. Same in Denver. Face it, you have utter morons running your state.....

-- West is Best (forget@california.com), December 27, 2000.

Best said, Best Is West,

Wish there were better reasons but there aren't. It takes 4 YEARS to get through the paperwork to START TO BUILD a simple gas fired plant out here. Nukes of course out of the question. We have indeed brought this upon ourselves but betcha the lites don't go out in 92010.

Look at the bright side. The 7th largest economy in the world has a sea otter population that is recovering, a new dehli sand fly whose sand is safe and a kangaroo rat whose presence precludes prudent brush trimming around your house during fire season. No problem. I just tell my grandkids that when all the stupidity is over they can burn sea otter fat in their lamps.

Somebody here is going to ask why I didn't vote for Gore. I just feel it coming.

-- Carlos (riffraff@cybertime.net), December 27, 2000.

West,

"Your argument that we are running out of natural gas is hollow"

Outlook for natural gas: Is a train wreck pending"

-- Cave Man (caves@are.us), December 28, 2000.

http://pub38.ezboard.com/fdownstreamventurespetroleummarkets.showMessa ge?topicID=2217.topic

-- (caves@are.us), December 28, 2000.

West, "Your argument that we are running out of natural gas is hollow"

Outlook for natural gas: Is a train wreck pending"

-- Cave Man (caves@are.us), December 28, 2000. ======================

Cave Man,

I stand by my comment as the article your link took me to stated that even they didn't have all the answers to the question of supply.... Common sense would tell you that fossil fuels will not last forever and we need to start acting like it.... However, the problems facing California today, this last summer, and more than likely, the upcoming summer are self inflicted. Piss poor planning and judgement, plain and simple! With all the hot air blowing from politicians across the state, those wind turbines in the desert should be a spinning like mad! There's probably enough blame to go around, but I still lay this problem at the feet of the morons running california!

-- West is Best (forget@california.com), December 28, 2000.

The Energy Report By: Phil Flynn Phone: 800.935.6487 E -mail:pflynn@alaron.com 12/28/00

Thursday 12-28-00

The January natural gas went off with a bang! The AGA reported natural gas storage down an incredible 24.6% from year ago levels giving courage to the bulls to buy and top pickers to flee. The market hit another all time high of 10080 and January settled at all time highs of 9978. Natural gas consumers in Chicago are paying as much as 186% more this year than last. Part of that increase is due to an unusually warm winter last year. And with the AGA reporting a drawdown of 175 bcfs, some are wondering if we'll be facing shortages late in the heating season. Glass makers, fertilizer manufacturers, paper products manufacturers and aluminum smelters, among others, are feeling the pinch of high energy costs and some are being forced out of business or are consolidating operations. Spurred on by high prices, politicians are calling for investigations and the cold weather just keeps pushing in exasperating an already very real been one of the coldest and snowiest on record and we have a long way to go before we see spring. Ice, cold, snow has ravaged the nation as the terrible storm that hit Texas, Arkansas , etc., is headed for the East coast. As this storm hits the East coast, thoughts will turn to dwindling heating oil supplies and we're experiencing a run on natural gas now. It's been tough and all we can do is see if Mother Nature will look more kindly on us. But it seems she's of foul temper as the weatherforecasts continue to bring more of the same.

Gray Davis - Governor of California - is in over his head. He met with Alan Greenspan earlier this week and is now appealing to the White House for help with his energy crisis. Mr. Greenspan is concerned that the energy crisis may put the economy in California in a tail spin. And if it does go down, it may take the rest of the country with it. The biggest California utility - PG&E - is facing bankruptcy in a matter of 3-5 weeks if their request of a 30% rate increase to the consumer is not approved by the state. The industry has been partially deregulated but the state still has control of prices charged to the consumer. Total deregulation is needed for the utilities to survive. These high wholesale prices need to be passed along to the consumer. A federal bailout would only mean the tax payers of the US would pick up the energy tab for those who live in California. Lawsuits are beginning to fly. Edison International is suing the Federal Energy Regulatory Commission to lower the wholesale electricity prices that threaten their solvency. Standard and Poors - a stock and bond rating service - have threatened to downgrade debt instruments from the California utilities. This would make the situation worse. This is what happens when free markets are taken over by the US Federal Regulators and environmental protectionists dictate policy. It takes 4 years of study alone to approve a potential plan for drilling for new natural gas wells. That's just the STUDY of the matter, not even an approval! That's not putting up the drilling structure or bringing forth the product. And all because of the environmental protectionists. So we know who to blame. The pendulum has swung too far and this might be the wake up call. Imagine how long it will take to increase our supplies if held under current regulations. Imagine how long it will take if regulations are cut just in half. This problem is not going away anytime soon.

http://www.egcinc.com/Commodit-E-Zine/al/AQuotes.htm

-- Cave Man (caves@are.us), December 28, 2000.

Let's see here. Californians want all the power they can consume BUT they want it cheap, they don't want power plants in their backyards, they don't want any pollution, and they're only willing to deregulate what it costs to produce, while the cost of consumption is being strictly limited. And then they wonder why they have these problems.

This reminds me of the time the Florida legislature passed a law requiring more hours of sunlight per day in the winter. Somehow, that didn't happen either. Free lunches are as hard to find as ever.

-- Flint (flintc@mindspring.com), December 28, 2000.

Yes, we want everbody else to build generating plants in their back yards and sell electricity to us cheap. If you don't, we will have one great big hissy-fit and take down the world's economy.

You have your marching orders, now get to it!

-- Cave Man (caves@are.us), December 28, 2000.

"I just tell my grandkids that when all the stupidity is over they can burn sea otter fat in their lamps."

Speaking of stupidity, Carlos,

Firstly, the reason the sea otters were hunted to near-extinction is because they have the densest fur of any animal {a million hairs per square inch - give or take}. This adaptation enables them to survive in a cold water environment without much of a fat layer to speak of.

Now, more related to your own territory - many of the next generation of pharmaceutical wonders are coming from organisms which make their living in the kelp forest habitat. The sea otter is known as the 'keystone' or 'foundation species' for that environment. Without the top predator, it does not take long for other critters to over-run an area & turn it into barrens. Look to what has happened in the last couple of years in Alaska, after the orcas began feeding on otters because of a decline in seal & sea lion populations.

Take that tongue outta your cheek, Grampa, & pick on somebody yer own size!

-- flora (***@__._), December 28, 2000.

"California Fails To Solve Energy Dispute"

http://www.greenspun.com/bboard/q-and-a-fetch- msg.tcl?msg_id=004JH2

-- (in@energy.news), December 28, 2000.