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Wednesday, January 3, 2001 PUC Expected to OK Electricity Rate Hike

Energy: Increases for Edison, PG&E would be 'more moderate' than the utilities said they need to fend off bankruptcy.

By NANCY VOGEL, NANCY RIVERA BROOKS, Times Staff Writers

SAN FRANCISCO--California's electricity crisis could be amped up today with the expected release of a proposal by the Public Utilities Commission that would hit consumers with double-digit rate increases and leave the state's big utilities gasping for more. PUC Commissioner Carl W. Wood said late Tuesday that "more likely than not" the panel will recommend rate hikes for customers of Southern California Edison and Pacific Gas & Electric. But those increases, he said, will not soar to the 76% that Edison officials have said the utility may need over the next two years to calm Wall Street and dodge bankruptcy.

Declining to be more specific, Wood said consumers will be asked to shoulder "a more moderate" increase than the utilities have sought during four days of PUC hearings. Wood said commission staffers and others were scheduled to work through the night on the proposed rate-hike order so it would be available for public review and comment today--and for a PUC vote on Thursday. The higher prices, if approved, could appear on monthly bills as a temporary "surcharge," rather than as an increase in a customer's base rate. In this way, the PUC could technically keep in place for two more years the rate freeze mandated in the state's 1996 deregulation law. Wood said he has been given plenty of information in the last several days from the firms hired by the PUC to audit the two huge utilities. Based on that information, he said, "I don't think there's a hidden treasure trove of cash somewhere. It's no secret to anybody that their cash reserves are severely depleted." Unfortunately, Wood said, the gap between California's demand for power and its supply from aging power plants is so wide, and the market so dysfunctional, that rate increases by any name will not solve fundamental problems.

"That dynamic is going to keep driving things," Wood said, "and make it difficult for us to do . . . anything that is beneficial to ratepayers." The expected vote to increase electricity charges would cap weeks of extraordinary public posturing and pleas from the utility companies and Gov. Gray Davis, who has said he will unveil his plan to bring order to California's unruly electricity market in a speech Monday. Power suppliers have become increasingly skittish about selling to California until the price increases are decided. One supplier, British Columbia Hydro & Power Authority, revealed Tuesday that it has stopped selling electricity altogether in California's wholesale power markets. BC Hydro spokesman Wayne Cousins said the agency stopped selling to California's spot electricity markets last month because agency officials determined that they could extend no more credit to the Power Exchange or Independent System Operator, the two state agencies that buy electricity.

Other suppliers are similarly concerned, said Gary Ackerman, executive director of the Western Power Trading Forum, a Menlo Park, Calif., group that represents buyers and sellers of electricity. "Absolutely they are reluctant, very reluctant, to sell to California," Ackerman said. "Suppliers have been very careful and concerned about extending the credit limit to the state of California pending the PUC decision on Thursday." In its emergency hearings, the commission has been weighing the utilities' claims of poverty against those of consumer advocates, who contend that the utilities and their parent companies reaped billions of dollars before soaring market prices for electricity began bleeding utilities of millions of dollars a day. Seven consumer advocates prodded Southern California Edison chief financial officer James Scilacci during hearings Tuesday about whether the utility could do more to help itself before tapping customers' pocketbooks. Among other things, they asked why parent company Edison International gave shareholders $91 million in dividends in July and again in October, months after the utility began struggling to pay for wholesale electricity. "We thought it was manageable," Scilacci said. "Edison thought it was OK to pay $91 million in dividends even though you were making extraordinary efforts to solve your cash flow problems?" asked James Weil, director of a small consumer group run out of his home in Placer County. "Yes," said Scilacci. The company has borrowed $1.3 billion to buy electricity for customers and has failed in the last two weeks to borrow $1 billion more. Cash will run out in less than three weeks, Edison vice president Bruce Foster said. The power plants the utility still owns can supply only half of what the 11 million people it serves use. Similarly, in a filing with the Securities and Exchange Commission on Tuesday, PG&E said its cash reserves of about $1.2 billion will be depleted in about three weeks, when payments come due for electricity it has already provided to customers. Lenders have made it clear, Foster said, that the minimum level of reassurance they need before they'll loan more money is a substantial rate hike and a promise from the PUC that the utilities will be allowed to eventually charge customers for the billions of dollars spent buying wholesale electricity since May. At times, Foster said, Edison has paid market prices of $1 per kilowatt-hour of electricity--enough power to run a computer and monitor for seven hours--while it can legally charge customers only 6.5 cents for that power. Customers are protected by a rate freeze imposed by the Legislature as part of California's 1996 deregulation scheme. In all, Edison and PG&E estimate that they have spent $11 billion since May buying power without being able to pass the costs to customers, although that figure is offset by about half the high prices the utilities earn by selling the output of their power plants into the marketplace. Edison has proposed an immediate rate increase of 30%, with the option of further hikes--as much as 76% within two years--if market prices stay high. PG&E, which serves 13 million people in northern and central California, seeks a rate hike of 26% beginning this month, with higher rates possible. Sylvia Siegel, the 82-year-old founder of a San Francisco consumer group now called the Utility Reform Network, beseeched the commissioners to reverse California's four-year-old venture with using competition, not regulators, to set electricity prices. Lawmakers promised deregulation would bring cheap power, but it has so far triggered the transfer of billions of dollars of money from utilities and consumers to dozens of private power plant owners and power marketers. "Deregulation is a failure," said Siegel, slapping the table. "It must be turned back. There's nothing good about it." More quietly, under questioning, Scilacci said his utility too would like to abandon deregulation. "The only appropriate thing," he said, "is to go back to cost-based rates." The proposed order would be written by Administrative Law Judge Christine Walwyn, who has overseen four days of emergency hearings. Any of the four commissioners could also craft an alternative order to face a vote at the PUC meeting Thursday. On Tuesday, meanwhile, Davis announced that he was joining Edison in a lawsuit against the Federal Energy Regulatory Commission alleging that the federal board failed to protect Californians from price-gouging by power generators. "This lawsuit," Davis said in a statement, "is an attempt to force FERC to do what it should have done months ago: require generators to charge more reasonable rates. Only then can we have stability and affordable electricity in California." Davis' decision to file a friend of the court brief in the U.S. Court of Appeals in Washington D.C. following conversations he had last week with utilities and consumer advocates. However, at least one activist, Harvey Rosenfield, dismissed the step. "It was an obvious lawsuit," Rosenfield said. "You wonder why the governor didn't bring the lawsuit on his own. Why did he wait for the utilities to bring it."

Edison is seeking federal intervention to force power generators to lower the amounts they charge for electricity. However, in a written response to Edison's suit, attorneys for the federal commission Tuesday said the utility is seeking a "quick fix" that could worsen the problem. The commission criticized the state for creating a situation in which utilities buy the bulk of their power on the spot market, rather than entering into more stable long-term contracts to purchase power at fixed rates. The commission says the state apparently wants to continue purchases on the spot market for the time being. "A Band-Aid approach will not solve the underlying problems, including obtaining sorely needed new generating authority for California, resulting from that method," the federal commission said in its brief. The commission said Edison's claims of impending financial disaster are too speculative and uncertain to warrant the re-regulation of electricity prices that Edison is seeking. Edison responded angrily, saying that the federal commission does not understand the severity of California's electricity crisis or the utility's attempts to seek more reliable means of securing power at reasonable prices.

As for the federal commission's doubts about Edison's looming financial meltdown, another senior Edison executive, Bob Foster, said: "The financial situation is what it is. You can't invent cash. We have borrowed money to buy electricity for our customers and that is at an end."

* * * Vogel reported from San Francisco and Rivera Brooks from Los Angeles. Times staff writer Dan Morain in Sacramento contributed to this story. Copyright 2000 Los Angeles Times

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-- Martin Thompson (mthom1927@aol.com), January 03, 2001