PUC Chief to Urge Rate Hike, Favors ‘Tiered’ System

California’s top energy regulator said Sunday she will propose raising electricity rates as early as Tuesday, with consumers seeing higher utility bills in May.

Confronting dire projections about the cost and supply of power as summer nears, Loretta Lynch, president of the California Public Utilities Commission, said the rate increases will be structured so that large energy users, including residential consumers, will pay the most. Such a structure, she hopes, will force conservation.

“We need to move forward, and the PUC has substantial evidence [to justify a rate hike] that it didn’t have 90 days ago,” said Lynch, who was appointed by Gov. Gray Davis to head the commission.

Given Davis’ insistence that his appointees follow his lead on major policy shifts, Lynch is unlikely to take such a step without the Democratic governor’s assent. Davis has said repeatedly that he opposes any rate hikes, but Davis spokesman Steve Maviglio declined to comment, and Lynch would not discuss any talks she had with Davis.

Three of the five members on the commission--including Lynch--are Davis appointees, and it appears likely that Lynch has enough votes for a rate increase.

The state Constitution empowers the commission to set rates paid by customers of Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric. The three utilities supply power to 85% of the state’s population.

Some sources have speculated that rates could rise by 20% to 50%, or even higher--beyond the roughly 19% in rate hikes already approved or authorized by law. But Lynch said she isn’t sure how much rates will rise.

The magnitude of the increase depends on detailed information she has not yet received showing the cost of the state’s power purchases and the supply of electricity.

Davis has said he fears that a rate hike would ignite a ratepayer rebellion that could lead to a statewide initiative next year--though he also has said he could solve the energy crisis in 20 minutes by raising rates.

Pressure is building on Davis to increase rates. A rate hike could ease what threatens to become a state financial crisis by ensuring that California can afford to pay for electricity.

An increase also may be necessary to entice private investors to buy the billions in bonds that the state plans to sell to finance power purchases. And if a rate hike persuades Californians to use less electricity, it also could lessen the likelihood of repeated blackouts this summer.

Davis aides also have concluded that rates must rise, given that wholesale power costs remain high, and several lawmakers, including Assembly Speaker Bob Hertzberg (D-Sherman Oaks), have said a rate increase is inevitable.

Consumer Advocates Have Other Ideas

Consumer advocates probably will oppose the hike. Mike Florio, senior attorney with the Utility Reform Network, said that instead of raising rates, Davis should follow through on his threats to seize the electricity generated by privately owned power plants.

“They have got to get tough with these generators, and if that means commandeering the output of these plants, that’s what he’s got to do,” Florio said. “The only way to stop these guys is to cut them off at the pockets.”

While Davis remains publicly optimistic that there won’t be a rate increase--beyond the 19% already approved by past acts of the PUC and Legislature--his aides are convinced that rate hikes are necessary.

They cite three reasons: The state is spending billions to buy power, wholesale electricity costs remain high, and Californians must conserve more if the state is to avoid blackouts.

Lynch said the PUC can vote Tuesday to raise rates and set up the exact structure later. Lynch said she supports a “tiered” rate system that charges residents and businesses more if they’re large users and if they fail to cut back over past usage.

“Tiered rates make sense to [encourage] conservation,” Lynch said, “because we know we’re going to have supply problems this summer.”

Lynch also vowed that the PUC will move to quickly improve programs aimed at helping poor people buy energy-efficient refrigerators and other big-ticket appliances. But she also said the pricing structure will seek to ensure that everyone has a reason to cut back on use.

“We want to take into account what people can pay,” Lynch said. “But you don’t want people to have absolutely no incentive to conserve.”

Davis has called it Californians’ “patriotic duty” to reduce their power use by 10% from what they used last year, and is offering people rebates equal to 20% of their power bills if they cut power use by one-fifth between June and September.

Business analysts said a sudden boost in electricity prices would slow down growth, but shouldn’t bring economic expansion to a halt.

By one estimate, a major electricity rate increase for business and consumers could shave California’s employment growth by as much as 250,000 jobs over the next decade.

Yet Ross C. DeVol, the economist who made that estimate and the director of regional studies for the Santa Monica-based Milken Institute, said even those less-than-disastrous job losses probably overstate the potential economic damage.

What’s more, DeVol points out that a failure to come up with a solution for the power crisis that eases concerns of the business community also will hurt the state’s economy--perhaps even more than a rapid run-up in prices would.

In addition, he said, the governor’s efforts to shield ratepayers from higher charges, even if successful, would simply convert the economic cost into a drain on the state’s budget.

“Somebody’s got to pay,” DeVol said. “We’ll pay either as consumers or as taxpayers.”

If higher prices translated into more dependable power, some companies would accept the trade-off.

“Blackouts would put us out of business. It would just kill us,” said Chuck Lennox, facility manager at the Palmdale plant of SR Technics, an aerospace company that maintains and renovates airliners. “We pump our own water, so we couldn’t even flush a toilet without electricity.”

In the middle 1990s, when the PUC and Legislature began steps to deregulate the electricity system, lawmakers and utility executives were so confident the plan would work that they promised at least a 20% cut in electricity bills by 2002.

It hasn’t turned out that way. In part because of deregulation, Edison and PG&E; sold many of their power plants to independent companies, from which the utilities and the state now buy power.

State regulators have no authority over independent generators, which have earned substantial profits selling electricity back to California. Federal energy regulators have refused to intervene to cap the wholesale prices charged by the independent companies.

Those prices have nearly bankrupted Edison and PG&E.; The state began buying electricity with taxpayer money on behalf of the utilities in mid-January, after power generators refused to sell to the utilities for fear of not getting paid.

Altogether, electricity cost California $20 billion more in 2000 than in 1999, according to state officials. Industry traders predict no relief for this summer, when market prices are forecast to top $300 per megawatt-hour--the equivalent of paying $20 for a loaf of bread that cost $2 a year ago.

Customers of PG&E; and Edison have been shielded from those wholesale costs by a rate freeze the Legislature imposed as part of its 1996 deregulation plan. That rate freeze expires next March at the latest--when residential and small business users will face a 10% rate increase.

Three months ago, under tremendous pressure from PG&E; and Edison, the PUC imposed an emergency, 90-day “surcharge” on electricity bills that amounted to rate hikes of roughly 9%, or $5 per month, for renters and homeowners. Businesses faced boosts of up to 15%. The hike fell short of the 30% sought by Edison and PG&E.;

On Sunday, meanwhile, Edison announced that it may resume paying hundreds of small power producers by the end of the week. The utility owes the companies more than $800 million and stopped paying them in January, prompting many to shut down. In all, such small producers supply more than one-quarter of the power the state consumes.

Edison said it would begin mailing checks to those producers this week if the PUC approves a plan Tuesday to cut the price that utilities must pay them.

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