PUC Approves Largest Electricity Rate Increase in State's History

By NANCY VOGEL and TIM REITERMAN

March 28, 2001 12 AM PT

TIMES STAFF WRITERS

SAN FRANCISCO —

With protesters jeering their disapproval, besieged utility regulators Tuesday adopted the largest electricity rate hike in the state’s history and defended the action as the only way to keep the lights on for millions of customers.

The California Public Utilities Commission unanimously approved an increase of 3 cents per kilowatt-hour. That will boost rates by as much as 42% for some Southern California Edison customers and up to 46% for some served by Pacific Gas & Electric Co.

For the record:

12:00 a.m. March 29, 2001 For the Record
Los Angeles Times Thursday March 29, 2001 Home Edition Part A Part A Page 14 Metro Desk 1 inches; 35 words Type of Material: Correction
Rate increase--Step-by-step instructions for calculating electricity rate increases, which accompanied a story on the Public Utilities Commission in Wednesday’s Times, were not accurate for all cases. A revised calculation is described above.

The rate increase, which will cost customers nearly $5 billion a year, takes effect immediately but will not show up on utility bills until at least May.

The rate hike is the most far-reaching and politically volatile action the state has taken thus far to ease an 11-month-old power crisis that has nearly bankrupted the two largest utilities and triggered blackouts. But critics say it does not solve the fundamental problem of runaway wholesale electricity prices.

“The PUC has done all it can do to fight wholesale energy prices that are unjust and unreasonable,” said commission President Loretta Lynch. “We maintain the responsibility to keep the lights on. . . . I believe that adding another 3 cents will comprehensively address the need for revenues.”

The commission took steps to have utilities begin paying the state Department of Water Resources for the nearly $3 billion in power it has purchased for them since mid-January.

The PUC also ordered utilities to start paying for future power from alternative energy producers who are starved for cash and struggling to operate. The blackouts last Monday and Tuesday were precipitated in part by loss of power from such companies.

But it was the rate increase proposal that packed the auditorium at PUC headquarters. And the drama of the vote--and the vocal opposition--spurred each of the five commissioners to forcefully defend the unpopular action.

“These are extraordinary moments in California’s history,” declared Commissioner Geoffrey Brown, a recent appointee of Gov. Gray Davis. “And extraordinary moments require extraordinary courage. Loretta Lynch has taken a lot of bad hits. But it was she who stepped up to the role of leader in California.”

Rate Increase Lacked Support

Lynch proposed the rate increase, even though an administrative law judge at the PUC concluded that an increase was unnecessary and the PUC’s own consumer protection arm, the Office of Ratepayer Advocates, opposed it. She also did not have the public support of Davis, who appointed her and two other commissioners.

Davis has distanced himself from the PUC’s action, saying the commission was acting independently and that he remains unconvinced that a rate increase is necessary.

Commissioners Henry Duque and Richard Bilas--who were appointed by Republican Gov. Pete Wilson--called the rate hikes long overdue.

“Unless ratepayers want to face substantial rolling blackouts this summer, we have to start paying our power bills,” Duque said. “It cannot be done with the current rates.”

Saying “there is just no blood left in the turnip,” Bilas warned that “absent an immediate rate increase, the utilities will be in Bankruptcy Court.”

Before the vote, sign-carrying protesters chanted, “Rate hikes, no way, make the energy companies pay.” And the commission heard a parade of witnesses, most opposing the rate increase. Some called on the state to use eminent domain to seize power plants, as Davis said he might do as a last resort.

Doug Heller, of the Foundation for Taxpayer and Consumer Rights in Santa Monica, told the commission, “Go to these power pirates and tell them the state treasury is not their money orchard.”

Barbara George, of Women’s Energy Matters, said, “We should give the generators 24 hours to sign their plants over to the state and leave.” George was one of several people ejected for repeatedly disrupting the meeting.

At a hearing Monday, representatives of agriculture and manufacturing industries warned that the increase would hurt their members and the California economy.

The rate hike is the state’s largest, according to the Office of Ratepayer Advocates, which researched the issue.

Because the electricity rate is just one of many charges on a monthly utility bill, the overall effect will be about a 28% increase in monthly bills, said PUC staff.

Before the PUC action, homeowners and renters in Edison territory paid 7.2 cents per kilowatt-hour for electricity and another 5.3 cents per kilowatt-hour for other services. The new rate, totaling 15.5 cents per kilowatt-hour, boosts the overall bill by about 24%. The increase is about 26% for PG&E; residential customers. But under Lynch’s proposal, those increases would not be applied equally.

To encourage conservation, she seeks a tiered system that would charge miserly consumers of energy no more than current rates but would impose the new higher rates on bigger users.

The proposal aims the rate increase at those customers who use 30% or more beyond a so-called baseline amount, which is about half of the average residential use per month and varies by region.

Exactly who will pay the higher electricity rate will be determined by the PUC in hearings over the next month. Under Lynch’s proposal, nearly half of all residential customers would be spared rate increases.

Tiered Rates to Encourage Saving

Energy experts say tiered rates would encourage conservation, but they disagree about how much.

Davis energy advisor S. David Freeman, general manager of the Los Angeles Department of Water and Power, said utilities have long used tiered rates when charging low-income customers. “So this is not brand new. It’s just a more aggressive use of it,” he said.

UC Irvine economist Peter Navarro said he doubted that tiered rates would do much to stave off blackouts. The greatest conservation gains come from investment in efficient appliances, he said, and that’s why tiered rates are “no magic bullet.”

The increase will not show up in utility bills until May at the earliest, said Paul Clanon, chief of the PUC’s energy division.

The higher charges for electricity consumed between now and whenever the new rate structure is incorporated in monthly bills will be calculated retroactively and charged to future bills, Clanon said.

Utility executives and consumer advocates all threw up their hands at the question of whether the rate hike will be enough.

“Have we gotten the number right?” Duque said. “I don’t know. I hope we have. But this is a step in the right direction, and we’ll return any money not used to buy power.”

Bruce Foster, a Southern California Edison vice president, also said the rate increase is a step in the right direction. “Only time will tell,” he said, “if it is sufficient to meet the need.”

In a statement, PG&E; welcomed the PUC action as a “dose of realism,” but said the commission left unresolved a host of issues, including how much money the utility will have to pay for power that the state purchases for PG&E; customers.

The PUC estimates that the increase will bring in an additional $4.8 billion annually from the 24 million people served by Edison and PG&E.;

But that amount doesn’t go far in today’s California wholesale electricity market.

The state and utilities spent $5.2 billion in January buying electricity. The state, through the Department of Water Resources, has spent nearly $3 billion in taxpayer money to buy electricity on behalf of the utilities since Jan. 19 because power generators refused to sell to the cash-strapped utilities.

Money utilities collect from their customers, even with the new rate hike, is expected to cover a wide array of expenses, including payments on $10 billion or more in revenue bonds that the state hopes to sell this spring to cover the state’s cost of buying power.

“The numbers don’t add up,” said Jason Zeller, an attorney with the Office of Ratepayer Advocates. “Massive [additional rate] increases are my concern. We are sticking a finger in the dike unless wholesale prices come down.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Public Utilities Commission

Established in 1911 to oversee railroads in California, the commission now also regulates telecommunications, electricity, natural gas, water and passenger transportation companies. The governor appoints five commissioners, who must be confirmed by the state Senate, to six-year terms. Commissioners at a glance:

Loretta Lynch, president

Age: 38

First appointed by: Gov. Gray Davis in 2000

Party: Democratic

Education: BA in political science from USC; law degree from Yale University.

Career: Former director Career: Former director of the Office of Planning and Research for Gov. Gray Davis. Previously a Democratic campaign manager and partner in the San Francisco law firm of Keker & Van Nest, representing businesses and their employees in class-action suits, white-collar criminal cases and intellectual property disputes.

Richard A. Bilas

Age: 65

First appointed by: Gov. Pete Wilson in 1997

Party: Republican

Education: AB in mathematics from Duke University; PhD in economics from the University of Virginia.

Career: Former professor of energy economics and policy at the University of Oklahoma. Former California Energy Commission member.

Geoffrey F. Brown

Age: 57

First appointed by: Davis in 2001

Party: Democratic

Education: BA from UC Berkeley; law degree from San Francisco Law School.

Career: Former public defender for the city and county of San Francisco, elected to six terms beginning in 1978.

Henry M. Duque

Age: 68

First appointed by: Wilson in 1995

Party: Republican

Education: BA in political science from Stanford University; graduate study at UC Berkeley, Indiana University and Oxford University.

Career: Former executive with Trust Services of America, California Federal Bank and other financial institutions.

Carl Wood

Age: 52

First appointed by: Davis in 1999

Party: Democratic

Education: Attended UC Riverside.

Profession: Career: Former electrician at Southern California Edison Co.’s San Onofre Nuclear Generating

Station and executive with Utility Workers Union of America.

Source: California Public Utilities Commission

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Calculating the Rate Increase

The tiered rate hike for customers of Southern California Edison and Pacific Gas & Electric is targeted at consumers who regularly exceed a regionally adjusted baseline for electric usage set by the California Public Utilities Commission. The PUC action Tuesday authorized the two major utilities to increase their overall billing for electricity by 3 cents a kilowatt-hour. In coming weeks, the PUC will set the exact breakdown for how the the 3-cent overall increase is distributed in the rate base. PUC President Loretta Lynch presented a possible breakdown for the tiered rate structure.

Here’s how Southern California Edison residential customers can calculate the increase in their bill, based on the Lynch proposal:

FIRST TIER

1) From your most recent bill, add the baseline usage and the over-baseline usage to establish total usage.

2) Multiply your baseline by 0.1301. This is your baseline cost. There is no rate increase in the first tier.

SECOND TIER

3) If you do not have an over-baseline usage figure on your bill, the rate increase will not affect you and the result of step 2 is your bill. If you have an over-baseline usage figure, proceed to step 4.

4) Multiply the baseline by 0.3.

5) If your over-baseline usage figure is less than the result of step 4, multiply the over-baseline figure by 0.1516. Add this result to step 2, and this is your total bill. There is no increase in this rate.

6) If your over-baseline usage figure is equal to or greater than the result of step 4, multiply the result of step 4 by 0.1516.

There is no increase in the second tier.

THIRD TIER

7) Multiply the baseline by 2.

8) Subtract this number from the total usage.

9) Add the results of steps 4 and 8, and multiply by 0.2035. This would be your first rate increase.

FOURTH TIER

10) If your total usage is more than twice the baseline, take the result of step 8 and multiply by 0.2553. This would be your second rate increase.

11) Add the results of steps 2, 6, 9 and 10. This is your projected bill after the proposed rate increase.

FOR EXAMPLE:

A Southern California Edison account with a baseline of 500 kwh and an over-baseline usage of 700 kwh uses a total of 1,200 kwh.

1) 500 + 700 = 1,200