Utilities Seek to Recoup Losses From Customers

With just a few days left in the legislative session, the state’s two biggest utilities, Southern California Edison and Pacific Gas and Electric Co., are seeking state help to guarantee that their customers eventually pay for what they estimate will be more than a billion-dollar loss this summer.

The utilities have been forced to absorb the extraordinary cost of electricity this summer because their more than 8 million customers are shielded by a rate freeze imposed in 1996. The 1.2 million customers of San Diego Gas and Electric have no such protection and are the first in California to bear full market prices under the state’s 4-year-old experiment with deregulation.

On Friday, San Diego lawmakers were continuing to work on separate legislation to immediately cut and possibly rebate electricity costs for SDG & E customers.

Edison and PG & E lobbyists are floating proposals in the Capitol that would require the Public Utilities Commission to set a reasonable rate that allows them to recoup this summer’s losses. Utility officials said they hope such a rate would also be at a level that gives customers predictable monthly bills but is high enough to cover all of the utilities’ future costs for electricity.

“Somebody has to pay the costs,” said Bob Foster, an Edison senior vice president. “We do not want to experience what San Diego has gone through.”

In draft legislation circulating Friday--a proposal described by consumer activists as a threat--PG & E and Edison reminded lawmakers that they can lift the rate freeze from their customers at any time. They can do so through a provision in the 1996 deregulation law that allows it once they pay off unprofitable investments.

Such a possibility would be a political and economic nightmare for the Legislature, governor and utility regulators, who have been scrambling since June to find ways to halt the doubling and tripling of electricity bills in San Diego.

“Since we don’t know when the rate freeze might end,” said Foster, “we’re trying to give minimal guidance to the PUC and allow them to start to work on this.”

The utilities want a new rate in place before March 2002, when the rate freeze--imposed in 1996 by the Legislature as part of the sweeping deregulation law--is automatically lifted. At that point, under the law, PG & E and Edison customers must begin paying the market price for wholesale electricity.

The price of wholesale electricity nearly tripled this summer, to more than 19 cents a kilowatt-hour. SDG & E customers have borne the whole cost, while Edison and PG & E customers pay no more than 9.4 cents per kilowatt-hour under the rate freeze.

At least one consumer group attacked the utilities’ proposal, calling it a shocking repeat of the tactics utilities used in August 1996 to win unanimous support in the Legislature for the deregulation bill, the broadest and most complicated of any such law in the nation.

“This is like a recurring nightmare,” said Nettie Hoge, executive director of the Utility Reform Network in San Francisco. “First they want deregulation that assured them of profits on their unprofitable investments. . . . Now they want legislation that assures them that no matter how long prices remain inflated, they can continue to reap the high profits they’ve been making under deregulation.”

Senate leader John Burton (D-San Francisco) said there’s a chance some kind of relief bill for utilities could be passed before adjournment Thursday, but it would have to win consumer groups’ support.

“If everybody supported it,” said Burton, “it ain’t impossible.”

Other lawmakers expressed skepticism.

When the deregulation bill was moving through the Legislature in 1996, said Assemblyman Fred Keeley (D-Boulder Creek), the utilities were willing to risk some losses because the law allowed them to set the rate freeze at a level that until recently was often higher than what utilities paid for electricity.

The deregulation law also gave utilities something they wanted badly, a means to pay off unprofitable investments in nuclear power plants and alternative energy. Consumers have been paying down those billions of dollars of “stranded assets” through a charge on their monthly bills.

“Now the utilities are seeking to change the deal when it is no longer to their benefit,” Keeley said, “and I think that’s something the Legislature should be very, very cautious about doing.”

SDG & E paid off all of its “stranded costs” early and so was able to lift the rate freeze this year.