PUC Votes to Keep Record Power Rate Hikes

California’s chief utility regulator Thursday decided to indefinitely keep in place the record electricity rate increases approved during the energy crisis and lifted restrictions on use of the extra billions of dollars collected by the utilities since then.

Angering consumer advocates, the California Public Utilities Commission voted unanimously to use the ratepayer money, if necessary, to help fully restore the financial health of Southern California Edison and Pacific Gas & Electric Co.

The commission said the step was necessary for the companies to secure adequate electricity supplies for customers at reasonable rates.

“This is an unfortunate step [designed to] continue the stabilization of our energy market,” said PUC President Loretta M. Lynch.

In a long-awaited decision, the PUC also ordered many large industrial and commercial customers who use private energy providers to begin paying for power obtained by utilities and the state on their behalf. But Lynch and a fellow commissioner dissented, saying that big users were getting terms that amount to a subsidy by ordinary ratepayers.

In March 2001, when the PUC adopted surcharges that boosted average rates 30%, the commission said consumers would see lower bills and rebates when electricity prices fell. At the time, the commission earmarked money from the rate hike for electricity the state purchased on behalf of utilities that were losing money in the runaway energy market.

Although wholesale prices have plunged and the utilities have been collecting many millions of dollars more per month than their costs, the PUC now has other plans for the money -- projected at $2.7 billion this year.

The commission wants to help the utilities out of a financial morass and to extricate itself from litigation by the utilities. In settling a lawsuit by Edison, the PUC permitted the company to use more than $3 billion in ratepayer money to pay debts incurred before the rate increase. As part of its plan to help PG&E; out of bankruptcy, the PUC wants to use $4.7 billion of customer money.

“In each case, [helping the companies regain financial health] may require use of some or all of the surcharge revenues,” the PUC said Thursday.

The commission recently ordered the utilities to resume purchasing power for their customers, which would get the state out of the power-buying business.

But the utilities objected, saying that they needed an investment-grade rating from Wall Street to get the best price for power. The PUC’s action Thursday stated that the commission shared that goal.

Mike Florio, senior staff attorney for the Utility Reform Network, said the PUC “bailout” would cost ratepayers billons. “Enron plays and we pay,” said Florio. “We know the market was gamed, we know rates went up due to criminal conduct, yet the bill keeps getting passed on to small customers.”

Consumer advocates decried the commission’s decision on “exit fees” for so-called direct access customers, who purchase power directly from energy providers rather than through utilities.

In 2001, the exodus of big electricity users from utilities raised fears that a shrinking pool of customers would be left to shoulder costs such as the long-term contracts signed by the state Department of Water Resources. The PUC suspended enrollment with direct-access providers, who account for 13% of the power load.

The panel decided that the customers that enrolled between February 2001 and Sept. 20, 2001 -- ranging from factories, hospitals and farms to major public schools -- would have to pay back enough so that remaining utility customers would not be harmed by their departure.

The PUC voted 3 to 2 on Thursday to cap the payment at 2.7 cents a kilowatt hour, amounting to about $500 million a year in payments to utility customers. The payments start in January, and the amount will be reviewed periodically.

Commissioner Jeff Brown said the money owed by these big customers amounts to a loan with interest of 4%. “It is a giant step forward to start collecting to relieve the burden on bundled-service customers,” he said.

Brown said the decision balances two things: the desire of big customers to continue with direct access, and the protection of small customers.

Gary Ackerman, executive director of the Western Power Trading Forum, which represents energy providers, said the PUC decision is “CPR for direct access and breathes life into an element of deregulation that was floundering.”

Ackerman said direct access will save customers money despite the exit fees, which he estimated would total several billion dollars over the next 15 years.

PUC Commissioner Carl Wood attacked the decision as an attempt to preserve one of the vestiges of the state’s failed deregulation plan. “This is a forced loan that we are imposing on [utility] customers,” he said. “It might even result in a necessity to raise rates.”

Wood proposed an alternate that he said would provide for immediate recovery of almost $1 billion from those big users in 2001 and 2002. But it lost.