Question Remains Who’ll Take Brunt of the Rate Hikes

When the California Public Utilities Commission approved the largest electricity rate hike in state history, it ignited debate over how the pain of almost $5 billion in increased power charges will be shared.

Everyone from the governor and the PUC president to consumer groups and industry associations has weighed in, with about 20 plans.

They all say their formulas translate into equitable charges that will encourage serious energy belt-tightening.

The PUC, as the state’s chief regulator, must decide how to divvy the rate increase among millions of utility customers, ranging from single-family homes to factories that employ thousands of people.

Beginning today in Santa Monica, the commission will hold a series of hearings to let the general public have its say before the scheduled adoption of a rate plan on May 14.

PUC officials say rates will increase by an average of almost 30%. The question is: Who gets hit the hardest?

The rate structuring is a pivotal piece of California’s strategy for surviving the summer without economic devastation and extricating the state from a crisis that already has wreaked hardship on the state budget, utilities and customers alike.

The PUC not only must assess a welter of competing proposals that sometimes clash head-on. It also must design the rate structure without knowing with certainty how much money the state will need to buy power in the future.

Roughly half of residential users--including low-income customers--would see no rate increases, and that number could grow, experts say, if customers conserve significantly. Under proposals from Pacific Gas & Electric Co. and Southern California Edison, rates for heavy users would increase by 50% or more.

One battle shaping up is over whether residential customers alone should pay for the increased cost of delivering power to those conserving enough to be exempted from the rate hikes. Or should it be shared with businesses and other nonresidential customers?

The answers are politically and economically tricky because someone is going to feel the pinch.

“It is enough money to cause a noticeable increase for customers to whom it is allocated,” Paul Clanon, head of the PUC energy division, said.

PUC President Loretta Lynch, Gov. Gray Davis and others say rates should be tiered to reward energy savers and punish heavy users. The proposals involve fluctuation of a customer’s baseline, an amount utilities determine as the minimum level needed for household usage, varying by climate and region.

Some proposals call for four tiers of residential users; others for five.

Under Southern California Edison’s proposal, residential customers would receive a 5% rate hike for usage that sometimes exceeds 130% of their baseline amount but falls below 200%. Customers who use 300% above the baseline less than six months a year would see a 45% increase. Above that, the rate would climb to 70%.

Lynch’s proposed rate design attempts to reduce the gap between what residential customers pay and the lower rates paid by commercial and industrial customers.

The California Large Energy Consumers Assn., representing big steel and cement companies, said a rate hike of 3 cents a kilowatt hour--approved in March by the PUC--amounts to a huge increase for large industrial users who currently pay substantially lower rates than residential customers.

“One class should not pay an increase that is twice or three times [the percentage] . . . as others,” said William H. Booth, lawyer for the association.

Farmers and food processors express concerns that they would take a heavy hit because, unlike some industries, they are less able than some customers to shift power use to nonpeak times.

“The bulk of the crops go to processors in the summer,” said Ron Liebert, staff attorney for the 94,000-member California Farm Bureau Federation. “We can’t say we’ll do a double shift at night. Some crops have to be irrigated around the clock.”

The commission also must resolve a $1 billion disagreement over how much money the rate increase will raise.

If the utilities have their way, the 3 cents per kilowatt hour increase will be multiplied by the total number of kilowatt hours used by its residential, commercial and industrial customers.

However, The Utility Reform Network (TURN) contends that total should not reflect energy usage by low-income customers and other residential customers who consume less than 130% baseline--groups exempted from rate increases. That means the utilities would collect a total of about $4 billion from customers, not $5 billion.

TURN’s proposal, according to staff attorney Bob Finkelstein, also would mean “less money will be flowing to [the Department of Water Resources] for power purchases.”