http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/24/MN176940.DTL

Bombshell Warning on Power Cost

Spending may double and rates skyrocket, governor's office tells Legislature

Greg Lucas, Lynda Gledhill, Robert Salladay, Chronicle Sacramento Bureau

Saturday, March 24, 2001

Top Davis administration officials told lawmakers yesterday that the state may have to spend twice as much as expected on electricity purchases over the next two years - requiring rate increases of as much as 100 percent.

The stunning admission by the Davis administration contradicts his repeated promises that his plan to ease California's energy woes could be done without a rate increase.

California will probably need to issue $23 billion in bonds for electricity buys, more than double the amount Davis said would be needed by the state to keep electricity flowing until California's cash-poor utilities can get back on their feet.

Administration officials told lawmakers to stop action on a bill that would have capped the state's energy purchases at $10 billion.

But a Davis spokesman said the numbers were far from firm.

"There are a lot of scenarios being run . . . and until we complete the negotiations, this can be added up any way you want," said Steve Maviglio, press secretary to Davis.

"Those numbers are not based on any reality right now," he said. "There are too many things up in the air."

Assembly Democrats told a different story.

They said Tim Gage, director of Davis' Department of Finance, Cabinet Secretary Susan Kennedy and John Stevens, Davis' top energy aide, met with Assembly Democratic leaders and dropped the bombshell.

And they did so just as those same leaders were trying to convince fellow lawmakers how important the bill was to the Davis administration.

They also said that Davis, who was in the Palm Springs area for most of the day and briefly attended a fund-raiser at a golf club, was unaware of the figures.

PURCHASES IN BILLIONS

The three top aides said that electricity purchases for this year by the state would be $16 billion, not the $10 billion initially predicted. An additional $7 billion in state power purchases would be needed next year, they said.

The state has been buying power at a clip of $45 million a day since Jan. 17 because the troubled utilities could no longer afford to make the purchases.

From the start of the energy crisis, the state has planned to repay its power purchases through bond sales. The bonds would be paid off by a portion of the amount ratepayers are charged on their monthly bills.

Davis has so far insisted that enough money could be found to cover the $10 billion without raising rates.

But his aides said if the size of the bonds ballooned to $23 billion, a hefty rate increase would be necessary.

INCREASE UPON INCREASE

The Public Utilities Commission is already planning to make permanent a temporary 9 percent increase. An additional automatic 10 percent is scheduled for no later than March 2002.

But the aides said, on top of that, an additional 60 percent to 80 percent increase would be required to cover the debt service.

"For some time, I have believed a fundamental part of solving this problem is admitting there needs to be a rate increase, and the numbers that have been shared today make that inevitable, and we should start dealing with the reality as soon as possible," said Assemblyman Fred Keeley, D-Boulder Creek (Santa Cruz County).

One consumer advocate said the revelation means the utilities are closer to bankruptcy because the state and ratepayers won't have the cash to bail them out.

And it could mean political trouble for Davis.

"Unless the governor issues an ultimatum to lower the prices, everybody's bill will double, and he will not be able to run for re-election in 2002," said Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights.

PG&E THREATENS SUIT

The news came as Pacific Gas and Electric Co. threatened to take the state to court over Davis' plan to force the company to pay back certain creditors.

Davis' proposal would require the utilities to pay alternative power generators for all the power that they supply, something PG&E said it cannot afford to do. Several of the generators shut down earlier this week as rolling blackouts spread across the state.

The bill stalled yesterday in the Assembly as Republicans objected. Lawmakers will resume debate Monday.

Earlier in the week, Davis announced that action would be taken by the Legislature and the Public Utilities Commission that would guarantee payment to the alternative energy providers. He also said the state -- which has spent $3.7 billion to purchase power -- should be paid back first.

Without that promise, several of the small biomass, solar and wind producing plants -- called qualified facilities -- said they would have taken Southern California Edison Co. into bankruptcy court. The alternative generators provide enough electricity to power roughly 6 million homes.

PG&E said it cannot afford to pay the alternative producers and reimburse the state for the billions it has spent purchasing power.

"These actions approach the problem in a piecemeal and uncoordinated fashion and would force us to pay out far more than we collect in rates, further exacerbating an already precarious financial situation," Gordon Smith, PG&E's president and chief executive officer, said in a statement.

DIFFERING VIEWS ON COSTS

According to PG&E's numbers, the company collects $400 million a month in rates. It says the average price to pay all the generation sources exceeds $1. 4 billion a month.

But consumer advocate Nettie Hoge said the utilities are exaggerating their own costs in order to try to keep as much money as possible.

"It's just absurd," said Hoge, the head of The Utility Reform Network. "They have a temper tantrum every time something doesn't go their way."

The bill PG&E objected to is necessary to allow the PUC to order utilities to pay small power generators who agree to sign lower-priced contracts to provide energy.

The proposal offers generators a choice of agreeing to a five-year contract at $79 per megawatt or a 10-year deal at $69 per megawatt, Davis said. The going rate now is about $150 a megawatt. The PUC wants to act as early as Tuesday to bring some financial relief to the generators, who have been paid pennies on the dollar.

Assembly Republicans objected to the bill in part because it would allow the PUC to change the formula for setting the price paid alternative producers so that it no longer considered the price of natural gas.

Co-generators -- some of the largest of which are operated by oil refineries -- say without the price of natural gas as a consideration, it would cost them more to produce energy than what they would be paid for it.

-- (in@energy.news), March 25, 2001

Answers

http://www.sfgate.com/cgi- bin/article.cgi?file=/chronicle/archive/2001/03/27/MN127686.DTL

Tuesday, March 27, 2001

PG&E Bills Set to Rise 40%

RIPPLE EFFECT: Prices on services, goods will rise, economists say

Carolyn Said, Chronicle Staff Writer Tuesday, March 27, 2001 Higher power rates will affect more than just your PG&E bill. You'll feel the pinch when you pick up a loaf of bread, go out for lunch or take your clothes to the dry cleaner.

Natural gas prices have more than doubled over the past year, and regulators are expected to raise electricity rates 30 percent today and make permanent the recent 10 percent increase. These steep increases in utility bills are bound to ripple through prices for all kinds of goods and services, economists said.

"Everything we produce or consume requires power," said Steve Cochrane, senior economist for Pennsylvania forecasting and consulting firm Economy.com. "You'll see prices rise for almost everything." Cochrane predicts price tags for locally produced goods will rise between 2 percent and 4 percent.

Many merchants said they have no choice other than raising prices or closing their doors.

"What can I do, charge an entry fee?" said Harry Pruyn, owner of Solano Cleaning Center, a coin laundry and dry cleaner in Albany. "I can't just sit here and absorb the costs. I have to pass them on."

With 31 dryers, 33 washers, two water heaters and a 9.5-horsepower steam boiler, his monthly Pacific Gas and Electric Co. bill has almost doubled from a year ago, to just under $6,000.

Due to the double whammy of higher store prices and bigger utility bills, it's likely that consumers will rein in their spending.

"This rate hike works almost like a tax for most households. It's an extra bite out of their income that won't be available for spending," Cochrane said. "I think retailers may see a few tough months as households readjust their budgets."

Cynthia Kroll, a regional economist with the Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley, agreed.

"If you combine declining consumer confidence, concerns about the economy and these rising (utility) prices, it certainly could contribute to slower spending in the Bay Area and California," she said.

IMPACT NOT DEVASTATING

Still, the impact won't be devastating.

"Obviously, this will have somewhat of a dampening effect on the state's economy but probably not as much as most people think," said Ted Gibson, chief economist for the California Department of Finance. Even the doubling of natural gas bills just eats away about 1 percent of most households' budgets, he said.

"Those are not economy-stopping kinds of numbers," Gibson said, pointing out that much of the East Coast already pays more for utilities than California, even considering the new rate hike.

"These numbers, while they're high and shocking, are not outside the realm of what a good number of other people in this country pay for electricity and heat," Gibson said. "New York, Boston and so on seem to survive reasonably well even under those high fuel costs in a climate that requires more fuel."

The effect from rising gas prices has already shown up in economic figures. The consumer price index for the Bay Area rose 6.5 percent from February 2000 to February 2001, according to the Bureau of Labor Statistics. That far outpaced the 3.5 percent increase nationally.

Although housing costs remain the largest factor, what the Bureau of Labor Statistics calls "an extraordinary" 133.8 percent increase in utility natural gas costs also contributed to the spike.

CONSERVATION BEST CONTROL

Energy conservation remains the primary route for both consumers and businesses to exert some control over their skyrocketing bills.

"We're being more conservative with lights; looking at what we're burning unnecessarily; turning off ovens when not in use," said John Threadgold, bakery director at Semifreddi's of Emeryville, which produces 120,000 loaves of bread a week. But the measures aren't enough to offset a $7,000 monthly increase in the bakery's PG&E bills. So far, Semifreddi's has not passed along the extra costs to customers, he said.

Some businesses can't sidestep their energy use. If you sell lamps, you need to illuminate them.

"We have to cry," said Yuri Bugovlya, manager of the Light House, a lamp store on Geary Boulevard in San Francisco.

Pruyn, the Albany laundry owner, has changed his dryers to give 7.5 minutes per quarter, instead of 10. Next, he may spend $9,000 to buy an extractor -- a kind of centrifuge that will spin out a couple of cups of water from each load of wash, reducing the drying time.

"The only other idea I could come up with was to string a clothesline on top of my roof and advertise solar drying," he said.

-- (in@energy.news), March 27, 2001.