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California rate hike hits homes, businesses

Posted at 10:50 p.m. PDT Tuesday, May 15, 2001

by Michael Bazeley

Millions of Californians opening their electric bills next month will see the biggest increase ever in residential electric rates as regulators try to shore up the state's failing energy system.

After several delays this month, a divided California Public Utilities Commission voted 3-2 to raise rates across the board, saying it was necessary to keep the lights on in California. The increase follows a 10 percent hike approved in January. Residential customers will see their bills rise an average of 7 percent to 37 percent, depending upon their usage, while small commercial users will see their bills climb an average of about 37 percent.

The new rate plan, which goes into effect June 1, was the result of last-minute jockeying by commissioners and staffers in Gov. Gray Davis' office to try to bring down rates for industrial and agricultural users.

In the end, no one came away happy. The commission lowered agricultural rates before the vote, but farmers will still pay rates that are 15 to 20 percent higher. Industrial and large commercial users got almost no last-minute reprieve and will see bills spike an average of about 49 percent.

Residential users saw their rates jump at the last minute. They are now divided into two camps: those who can keep usage at or near baseline levels and those who cannot. Energy misers and small households will get no increase. But homes where usage soars past the baseline could see their bills climb by 37 percent.

``This is a sad day for 34 million Californians and the California economy,'' said Carl Guardino of the Silicon Valley Manufacturing Group. ``The PUC has basically strangled the goose that laid the golden egg.''

Some residential customers are worried. Fremont resident Michael McCrary said the new rate structure penalizes large families and spares apartment dwellers and small households. The father of five said he expects his electric bill to jump at least 20 percent next month when the increase shows up in bills.

``I don't think that's fair,'' said McCrary. ``Between this and the natural gas increases, I'm looking at a PG&E bill that is double overall, which is 50 percent of my mortgage. That's not equitable.''

9 million customers

The plan affects about 9 million customers of the state's two largest utilities, Pacific Gas & Electric and Southern California Edison. The rate increase will generate more than $5 billion for the utilities. Regulators will decide in the coming weeks whether all of that money should go to the state -- which has been buying power for the financially troubled utilities -- or whether some should go to the utilities to help pay bills.

The commission vote fell along party lines, with Democrats Loretta Lynch, Jeff Brown and Carl Wood voting for the new rate structure, and Republicans Henry Duque and Richard Bilas voting against it. Wood said he regretted having to raise rates at all. But the increased cost of wholesale electricity left the commission with no alternative, he said.

`There is no justice in any decision we can come up with because the underpinnings -- the paying of these wholesale prices -- are unjust,'' Wood said. The vote came amid jeers from protesters, who wore black to mourn the death of the California economy.

As Wood did, Brown blamed the higher prices on energy wholesalers, who he said are gouging Californians. ``I hear you when you say there will be pain and suffering,'' Brown said. ``But unfortunately, the wholesale prices have put us in an untenable situation. We cannot put our head in the sand.''

Duque and Bilas were harshly critical of the rate plan, saying it placed too big a burden on businesses. Bilas said the residential increases were not big enough and would do little to help the commission achieve its stated goal of encouraging conservation. At the same time, he argued, the higher rates would send the state's economy into a ``recessionary death spiral.''

`We risk plunging the state back into the same recessionary conditions with high commercial rates that set the stage for electric restructuring in the first place,'' Bilas said. ``History will repeat itself. Businesses will flee the state or shut down entirely. This means jobs and taxes are lost.''

Duque said he was troubled by the ``moral'' implications of the new rate structure and the way that it penalizes heavy energy users. ``In my view, the new rate design assumes that the consumption of energy is a moral decision between good and bad,'' Duque said. ``The decision has a clear morality. All businesses and residential customers who consume more electricity are bad.''

Last-minute lobbying by business interests appeared to have little effect. Davis, who had been lobbied heavily by business groups, called upon Brown to try to bring down rates for industrial users. But Brown said he could not find a way to do that without penalizing other users.

Davis disappointed

Davis, who presented his own plan to the commission, offered a tempered response. But he indicated that he was disappointed with the commission's vote. ``While the PUC's revised rate increase made some modest improvements, my plan represented a more balanced approach,'' Davis said in a statement.

Tensions surrounding the rate hike had been building up to Tuesday's vote. After the vote, emotions spilled over into the plaza outside the commission's meeting room in San Francisco. There, Brown confronted Michael Florio, an attorney with The Utility Reform Network, to deny that he'd been influenced by big business. Florio had been telling reporters that the commission had sold out to big business at the expense of residential users.

`There's plenty of outrage to go around,'' said Florio. ``The commission bent over backward to give a break to the people who pushed for deregulation.'' But Brown, his face inches from Florio's nose, said he was never lobbied by any business representatives. ``I made my own decision based on what I thought was good or bad economics,'' said Brown, thrusting his finger toward Florio's chest.

``I guess he's feeling a little touchy after today,' Florio said.

Contact Michael Bazeley at mbazeley@sjmercury.com or (415) 434-1018.

-- Swissrose (cellier3@mindspring.com), May 16, 2001