Hertzberg Calls Higher Power Rates Inevitable

Assembly Speaker Bob Hertzberg said for the first time Friday that he believes further electricity rate hikes are inevitable, and aides to Gov. Gray Davis softened their adamant opposition to the increases that utility officials have been demanding for months.

The amount of any increase remains to be determined. But some administration sources said hikes could average 20% or higher--on top of the 9% already imposed on residential users by the California Public Utilities Commission earlier this year, and another 10% hike that is expected at this time next year.

A spokesman for the governor, however, said Davis continues to oppose additional hikes.

But the Assembly speaker made it clear that the state may have little choice. “Mathematics are mathematics,” Hertzberg said, adding that California has been paying significantly more for electricity than had been anticipated. “I don’t know what it will look like at the end of the day,” he said. “But it won’t be pretty.”

Altogether, customers of the state’s two largest private utilities, Southern California Edison and Pacific Gas & Electric, could be looking at rates that would be nearly 40% higher than they were in December.

Any increase would not affect customers of the Los Angeles Department of Water and Power or other municipal utilities that operate separately from the private utilities. The DWP has not experienced any electricity shortages and is not seeking a rate increase.

A top official in Davis’ administration, requesting anonymity, said the governor’s staff “is totally sold on a rate increase” for Edison and PG&E; customers. In an effort to encourage conservation, any increase would impose higher costs on people who use the most electricity.

“The staff is looking at some kind of structured rate increase, where larger residential users pay more,” the source said. “It is being seriously floated.”

Davis has been briefed on the proposal, the aide added, but has not made a decision about how to proceed. The governor repeatedly has said he opposes any rate increase beyond the 19% already approved. “Believe me,” he said recently, “if I wanted to raise rates, I could have solved this problem in 20 minutes.”

Davis spokesman Steve Maviglio, citing Davis’ view that there will be no further rate hikes beyond those authorized, said: “What matters is not the advice he gets but the decisions he makes.”

“We all know this isn’t going to get fixed without raising rates,” said a top Democratic lawmaker, speaking on the condition that he not be named. “We’re in a waiting game with the governor. It’s like a game of chicken.”

Executives of major private utilities, power generators and many others have been saying for months that Davis has been unrealistic in his opposition to rate hikes. Edison and PG&E; amassed nearly $14 billion in debt as they purchased power on the unregulated wholesale market, but were barred by state regulators from passing on the costs to consumers.

“The reality,” PG&E; executive Dan Richards said Friday, “is there are simply more demands than can be paid out of the current rates. It is simple math.”

In another indication of the magnitude of the problem, Davis administration officials and others believe that $10 billion in bond sales authorized by legislation earlier this year probably will fall short.

After only three months of purchasing roughly 30% of the state’s power demands, California has spent nearly $3 billion in taxpayers’ money, an amount that grows by $50 million a day. The administration has sought authorization to spend $4.2 billion.

Even at such spending levels, the state has failed to pay for all the electricity it has procured. A Pacific Gas & Electric executive testified earlier this week that the unpaid bills could amount to $3 billion by the end of the year.

At the start of the year, Assembly Democrats had been working on assumptions that would have kept rates relatively stable. But as weeks have passed, the magnitude of the electricity problem has come into clearer focus.

A report issued earlier this week by Davis showed that the state will be buying at least half its power this summer on the costly and volatile spot energy market, where prices at peak hours are many times higher than the prices paid by consumers.

Adding to the upward pricing pressure, an alternative energy producer won a court ruling this week that allowed it to get out of its contract to sell electricity to Edison at low prices.

Several other alternative power producers probably will follow suit and attempt to break their own contracts with Edison and PG&E;, which haven’t paid the alternative energy producers for months. Once they get out of the contracts, the producers can sell their power at wholesale market rates that are many times higher than what the utilities were paying.

“The generators haven’t taken their foot off our throat for a moment,” state Treasurer Phil Angelides said, “and they won’t until we create a competitive marketplace. We’re in a bad spot, but denying that and failing to bind it up quickly will only lead to worse results.”

“The rates are going to be what they are going to be to keep the lights on,” Angelides added.

Every effort must be made to bring down prices through long-term power contracts and the renegotiation of small energy producer contracts with the utilities, Angelides said, but an outright refusal to raise rates could delay long-term solutions to the energy crisis.

The administration, meanwhile, pulled back on its support for legislation it had sought to resolve major energy issues, including the matter of paying the alternative generators. The legislation had passed the state Senate but languished in the Assembly.

Exemption for Hospitals

In other developments Friday:

* Hospitals with 100 beds or more will be exempted from rolling blackouts beginning Wednesday, the California Public Utilities Commission ruled. Hospitals are exempted now only if they have no backup sources of electricity.

* In Washington, Rep. Doug Ose (R-Sacramento), chairman of the House subcommittee on energy policy, natural resources and regulatory affairs, said congressional hearings will explore allegations that wholesale electricity suppliers overcharged California $6.27 billion.

Ose said he will call electricity wholesalers, federal regulators and California officials to testify at the hearings next month in Sacramento, San Diego and San Jose.

*

Times staff writers Nancy Rivera Brooks, Nancy Cleeland and Mitchell Landsberg in Los Angeles, Nancy Vogel in Sacramento and Richard Simon in Washington contributed to this story.