SDG&E; to Modify Rate Plan Criticized by Co-Generators

San Diego Gas & Electric Co. said Tuesday that it had tentatively agreed to modify a controversial electric rate proposal that opponents said would kill co-generation in the utility’s service area.

The proposed rate agreement, negotiated by SDG&E; and several industry groups that represent about 400 of the utility’s largest electric customers, calls for the scaling back of a proposed “standby charge” that opponents claimed would make co-generation projects uneconomical within SDG&E;’s service area.

The agreement, if approved by the state Public Utilities Commission, will be incorporated into SDG&E;’s general rates after Jan. 1, 1988. The proposed rate would affect only the utility’s larger industrial customers, many of which use co-generation to reduce electric bills.

“Based on what (SDG&E;) asked for originally and where we are now, the (agreement) is a major change,” said Gary Estes, president of the San Diego Energy Alliance, an industry group that helped negotiate the agreement. “SDG&E;’s original proposal was outrageous.”

SDG&E; earlier said the rate was necessary to counter the increasing number of industrial customers who install co-generation plants that churn out cheap electricity along with steam or hot water that can be used to heat and cool buildings or drive machinery.

Co-generation allows companies to cut their reliance on SDG&E;, but the utility still must maintain costly electrical generating equipment that is needed to meet the companies’ occasional demand for electricity.

SDG&E;’s original rate proposal incorporated a heavy, up-front fee and relatively cheap electricity to cover those costs. The negotiated settlement includes a smaller up-front fee and higher-priced electricity, a rate design that is more amenable to co-generators.

The new rate would not affect SDG&E;’s smaller electric customers because any increases or decreases would be spread among the utility’s largest customers.

SDG&E; is “very satisfied” with the proposed agreement, according to Doug Hansen, SDG&E;’s manager of pricing, who added that the modified proposal “still moves us along toward cost-based rates, which has been our intent.”

SDG&E;, with the PUC’s blessing, has been trying to design rates that are more in line with its costs.

“Everyone involved has agreed that cost-based rates are a good thing,” said Jerry Bloom, a San Francisco-based attorney for the Energy Alliance. “The only argument has been how to calculate those costs. The original proposal was particularly punitive to co-generators.”

The negotiations with SDG&E; involved the Energy Alliance, the Hospital Council of San Diego and Imperial counties, the California Co-generation Council and the federal government.