Consumers' power bills to jump at least 19%

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Consumers' Power Bills Likely to Jump at Least 19%

Utilities: State bond costs and the end of a legislated rate cut will hit customers of Edison, PG&E and San Diego Gas & Electric next year.

By MIGUEL BUSTILLO, Times Staff Writer

SACRAMENTO--Millions of Californians are almost guaranteed to be paying 19% more for electricity next year than they were just months ago as a result of the energy crisis. And, under terms of the power deals now in play here, they may well have to pay more to rescue the state's private utilities--although the full amount can't yet be determined.

Rescue-related bonds that could total more than $20 billion--an unprecedented sum for state government--are under consideration in the Capitol to fund everything from a state takeover of the utilities' power grid to a partial payment of their massive debts. All would be repaid straight out of ratepayers' monthly energy bills for years to come.

"There's going to be a truckload of paper," said John Pizzarelli, the director of public finance at MBIA Insurance Corp., which backs public bonds. "It could easily top $20 billion."

To guarantee that those monthly bills are big enough to cover the bonds, which is essential if Wall Street is to bless the plan, rate increases could soon be necessary, say state officials and financial experts.

Part of the rates would be set aside in the form of a "dedicated rate component," a specific part of the bill, similar to a surcharge, assigned to retire the sizable bond debt.

How much rates go up, if they do so at all, depends on the success of a complex tangle of half-finished negotiations and yet-to-be-implemented measures that are intended to restore stability and sanity to California's chaotic energy market. They include efforts to lower the price that the state's investor-owned utilities pay alternative energy producers, which provide a third of the power that utilities need.

Another factor will be the state's ability to secure long-term contracts with power sellers, lowering the price paid for another third of utilities' electricity supplies. Utilities generate the other third of the power themselves.

"This all comes down to numbers: what you buy power for, what you buy the [utilities'] transmission lines for, and what the utilities want to retire their debt," said state Treasurer Phil Angelides. "When we have the answers to all those questions, then we will know the impact on ratepayers."

Gov. Gray Davis reiterated Friday that he believes all can be accomplished without further rate boosts for affected consumers, those who get their power from Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric.

Los Angeles residents are not affected because they get their electricity from the city Department of Water and Power. "I want to make clear that it is my plan to do this within the existing rate structure," Davis told reporters.

Even under that structure, however, utility ratepayers will probably see an increase of at least 19% by March of next year.

The Public Utilities Commission granted a temporary 9% rate increase in December in response to the energy crisis. In approving the first step of Davis' financial rescue plan last month, lawmakers assumed that that hike would become permanent.

Furthermore, a 10% rate reduction that the Legislature imposed when it deregulated electricity in 1996 is set to expire next year, resulting in an equal rate increase. Lawmakers have already stated that they do not expect to renew the reduction.

Thus, the question lingering in the aftermath of Davis' announcement is not whether rates will rise, but whether the energy fiasco will exact an ever greater price from affected Californians. Many of the factors that will determine that remain unresolved.

Legislation already signed into law by Davis has placed the state in the power-purchasing business, buying electricity that utilities can no longer afford, in order to keep lights on in the state. That last-gasp move has already cost state taxpayers more than $1.5 billion, and is expected to surpass $2 billion this month.

Under the measure, AB 1X by Assemblyman Fred Keeley (D-Boulder Creek), the state coffers are supposed to be reimbursed with help from an estimated $10 billion in revenue bonds--the largest public financing bond issue in American history, according to bond experts. The bonds, in turn, would be retired by utility ratepayers.

So far, however, the state has failed to enter into many long-term contracts to lower electricity costs, the intended goal of the legislation. Suppliers have been unwilling to make long-term deals without seeing the full scope of California's rescue plans, which will affect whether they will be paid the money they are owed by the utilities.

As a result, the state's cost of purchasing power continues to be steep--$1 billion per month--raising the possibility that the bonds, which will not be issued until May at the earliest, will need to exceed the planned $10 billion, Angelides said Friday.

Whether the state can enter into enough contracts to keep power prices within existing rates remains unclear. Lawmakers have been working for weeks to keep rates in check by lowering the price utilities pay to producers of solar, wind and other alternative energy.

State negotiators believed they had reached an agreement in principle last month to cut the producers' price from 17 cents to 7.8 cents per kilowatt-hour--a reduction that would dramatically help efforts to avoid further raising rates. But those negotiations have slowed and the chief negotiator, state Sen. Jim Battin (R-La Quinta), is now looking to lower the prices to the range of 8.5 to 9 cents.

Then there are the bonds stemming from Davis' rescue plan. The purchase of the transmission lines, the asset California would acquire in exchange for helping restore the utilities to financial health, could cost anywhere from $3 billion to $9 billion. The state would then have to pay to upgrade the grid, an estimated $1-billion expense, which would probably also be covered with bonds.

Ratepayers are already charged a transmission line fee as part of their utility bills, and as long as the bonds to pay for the takeover do not exceed that fee, lawmakers do not anticipate an effect on rates.

But Davis has pledged to buy the lines at market value, which could make that more difficult. Finally, there are the revenue bonds the state would allow the utilities to float to recover their debt.

The bonds would technically be corporate bonds, but they would be paid off with yet another surcharge on utility bills--a so-called "dedicated rate component"--which would also have to be guaranteed.

Because all the bonds contemplated as part of the state's rescue plan are revenue bonds not backed by the state, but by money from ratepayers, they will not increase California's outstanding tax-supported debt of $24.55 billion.

Nonetheless, California will spearhead the sale of all the bonds with the exception of the utilities' debt bonds, and will want to ensure they are successful to preserve the state's reputation, Angelides said.

Angelides said Friday that he had selected a huge team of 26 financial firms led by J.P. Morgan Securities Inc. to formulate and help market the $10 billion in bonds. The team represents more than half of those who applied to get a piece of the issue, the largest in American history. "It's a gold rush," said one Wall Street analyst.

Copyright 2000 Los Angeles Times

-- Swissrose (cellier@azstarnet.com), February 17, 2001


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