PUC to Vote on Big Rate Hike; OK Is Likely

Millions of Californians would see electricity rates rise by about 40% under a plan presented Monday by the state’s top power regulator.

Loretta Lynch, president of California’s Public Utilities Commission, called rate hikes necessary both to raise cash and to encourage conservation.

Her plan would charge some customers of the state’s two biggest private utilities 3 cents more per kilowatt-hour, depending on how much electricity they consume. The higher cost would show up in May power bills.

Lynch promised to target the increases on heavy users of electricity and spare nearly half of residential customers from paying more. The commission is scheduled to vote on her proposal today, and it is almost certain to win approval, according to commissioners.

It would cost customers of Southern California Edison and Pacific Gas & Electric a total of $4.8 billion a year.

San Diego Gas & Electric is not covered by the proposed rate hikes, though officials there said their utility should be.

Nor would the increases affect the customers of municipally owned utilities in Los Angeles, Riverside, Pasadena, Anaheim and elsewhere.

Lynch’s proposal drew fire from consumer advocates, sighs of resignation from lawmakers and enthusiasm from Wall Street. Stock prices for both companies jumped by nearly one-third.

For renters and homeowners, the proposal could cost nothing or as much as 40% more per month. Business customers--who now pay lower rates--could see even higher increases.

The latest proposed increase would come on top of an average 10% rate hike for all users imposed in January, which would become permanent under Lynch’s plan. An additional 10% increase for residential and small business users is already scheduled for this time next year.

“We recognize the utilities are in severe financial distress,” Lynch said. “For utilities to keep the lights on, we unfortunately came to the conclusion a rate increase was needed.”

Commissioner Geoffrey Brown, recently appointed by Davis, predicted that the plan will pass. Commissioner Richard Bilas, a Republican appointed by former Gov. Pete Wilson, would not say whether he would vote for Lynch’s proposal but said “rates need to go up.”

Davis, who named three of the five commissioners, distanced himself Monday from the PUC action, saying that it’s an independent body. He repeated that it is his expectation that rate increases can be avoided.

“I’ve not seen enough information to persuade me we need a rate hike,” the governor said at a news conference after speaking to students at Walt Disney Elementary School in Burbank.

If the increase is approved today, Lynch said, it will be refined in the 30 days it takes the utilities to change their billing processes. The rate increase would be subject to refund if it is more than enough to cover costs of energy purchases.

Lynch said she cannot finalize the proposal until she gets more information about power supply and cost projections from the California Department of Water Resources, which began buying electricity on behalf of the nearly bankrupt utilities in mid-January. That’s when some generators refused to sell to the utilities for fear of not getting paid.

Utilities Earned Substantial Profits

The utilities have been burdened by wholesale electricity prices that have topped 10 times the levels of those a year ago.

Rising demand for electricity across the West, plus fundamental flaws in the design of the deregulated market that California opened in 1998, have allowed sellers of electricity to earn substantial profits. Since the state stepped in to buy electricity for the utilities, it has spent about $3 billion covering roughly 34% of the state’s power needs.

While Davis has adamantly resisted rate hikes, other politicians have come to call increases inevitable. The state and utilities need a better cash flow to cover wholesale power costs expected to soar again this summer, they say.

And rate boosts will serve another critical purpose, they say, by prompting Californians to switch off lights, buy efficient refrigerators and shut down hot tubs. Such conservation will be crucial in whether the state avoids blackouts, grid operators say.

“If it is tiered right, it wouldn’t break my heart,” Senate President Pro Tem John Burton (D-San Francisco) said, adding that he expects that any increase will exempt low-income people.

Lynch said repeatedly that the 3-cent-per-kilowatt-hour hike she proposed should be all that is necessary to allow the state and utilities to keep buying electricity. The more than $13 billion the utilities claim they are owed for power purchases since May must be resolved through negotiations between the governor’s office and the utilities, she said.

The Legislature already has approved a bill guaranteeing that those who use 30% more than their minimal allocation, known as the baseline, won’t feel the hikes.

The baseline is a certain amount of electricity--50% to 60% of the average residential use per month--that varies regionally, so that a homeowner in the desert has a higher baseline amount than one living on the temperate coast. Electricity consumed up to the baseline amount costs less.

Last year, Edison customers paid 6.2 cents per kilowatt-hour for electricity. (The average home uses about 700 to 1,000 kilowatt-hours per month.) The PUC raised that rate to 7.2 cents in January, and Lynch’s proposal would boost it to 10.2 cents.

Edison customers also pay an additional 5.25 cents for distribution, billing and other costs on top of the electricity charge.

Lynch projects that under her plan about half of Edison’s households would have no monthly bill increases, one-fifth would have an 8% increase, and fewer than about one-third of the households would have a 27% increase.

Rather than welcome the potential rate hikes, Edison officials said they were frustrated that the PUC proposal does not guarantee that the higher rates will cover all of the utility’s and the state’s costs.

“It helps, but it doesn’t solve the problem,” said John R. Fielder, a senior vice president at Edison. “And it’s really vulnerable because if it’s not enough, then what do you do?”

Fielder pointed out that when Edison argued for higher rates in December, it was turned down, causing the utility to accumulate additional billions in debt. Monday’s PUC proposal treats that debt as a “stranded cost,” which the utility could eventually be expected to absorb, he said.

In a two-hour hearing on Lynch’s proposal, PG&E; lawyer Chris Warner called it a “a step in the right direction.”

“We agree with President Lynch that it’s time to pay the power bills,” he said. Warner declined to elaborate until the utility could study the proposal further.

Consumer groups immediately attacked the rate hike proposal.

Jason Zeller, an attorney with the PUC’s independent Office of Ratepayer Advocates, complained that “customers had no notice that they would be socked with the largest rate increase in California history.”

“My big concern . . . is it imposes massive increases, damages the economy, and there is no guarantee it would do any good,” Zeller said.

Bob Finkelstein of the Utility Reform Network said: “The focus [of the PUC] should be to bring prices down, not rates up.”

Power sellers in California’s market have “an uncanny ability to sniff out money,” Finkelstein said, and the Lynch proposal “only puts more on the table.”

Lynch blamed the need for rate hikes on exorbitant prices for wholesale electricity, noting that California paid $7.4 billion for electricity in all of 1999, and $5.2 billion last January. She also blamed the Federal Energy Regulatory Commission for failing to impose a cap on wholesale electricity prices in California, despite its mandate under federal law to assure citizens of “just and reasonable” prices.

To plug the $3-billion hole in the state budget and pay for power in coming months, lawmakers in February passed a law to sell roughly $10 billion in revenue bonds. The bonds would be paid back with money collected by the utilities from their customers.

In recent weeks the utilities have argued that little or nothing is left over after they subtract their own costs of producing and distributing power from what they collect from monthly bills.

But on Monday, Lynch issued a draft decision that would force the utilities to send ratepayer revenue to the state based on a formula set by the PUC.

Representatives of both PG&E; and Edison criticized that proposal at Monday’s hearing, saying it gave priority to the state Department of Water Resources.

Lynch also proposed forcing the utilities to begin paying hundreds of small energy producers. Some of those renewable and alternative power generators have not been paid since November. Many have shut down, and their lost output contributed to rotating blackouts last week.

The potential rate hikes were seen as lessening the possibility of utility bankruptcy. That sent investors diving into the stocks of Edison International, parent of Southern California Edison, and PG&E; Corp, parent of Pacific Gas & Electric Co.

Edison rocketed $3.35, or 30%, to $14.55 while PG&E; shares leaped $3.10, or 29%, to $13.75. Both stocks have lost considerable value in recent weeks as the electricity crisis dragged on with no solution.

Investors were not discouraged by PG&E;’s warning that it might take a $4.1-billion after-tax charge against 2000 earnings if it concludes that it will not be able to collect its electricity debts through rates. Edison last week said it might take a $2.7-billion after-tax charge when earnings are posted, no later than April 15.

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Reiterman reported from San Francisco, Vogel from Sacramento. Times staff writers Dan Morain and Carl Ingram in Sacramento and Nancy Rivera Brooks, Nancy Cleeland and Steve Berry in Los Angeles contributed to this story.

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How Rate Hikes Would Work

The California Public Utilities Commission’s rate hike plan, similar to one approved by the Legislature, would build on the system of baseline charges. The proposal would add a third tier of charges for customers who use 30% more than their baseline allowance. The baseline, set by the PUC, varies by region and is adjusted seasonally.

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Baseline: The amount of power a household consumes, up to the baseline, is charged at one fixed rate. The baseline is set at 50% to 60% of average residential usage.

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Over baseline: Anything consumed over that minimum level costs more. Most customers exceed their baseline.

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Added tier: Even higher costs would be imposed on those who exceed their baseline by 30% or more.

Sources: Southern California Edison, Pacific Gas & Electric

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Power Points

Background

The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined last year to push up the wholesale cost of electricity. But the state’s biggest utilities--Pacific Gas & Electric and Southern California Edison--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity.

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Daily Developments

* Electricity rates for millions of Californians could increase up to 40% under a proposal presented by the head of the Public Utilities Commission.

* With that news, Southern California Edison stock rocketed 30%, while Pacific Gas & Electric shares increased 29%.

* PUC President Loretta Lynch promised to target heavy users of electricity for increases and spare nearly half of residential customers from paying more.

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Verbatim

“It helps but it doesn’t solve the problem. And it’s really vulnerable because if it’s not enough, then what do you do?”

--John R. Fielder, an Edison senior vice president

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Complete package and updates at www.latimes.com/power