Davis Urges Electricity Rate Cut

Hailing a victory in his much-maligned energy strategy, Gov. Gray Davis announced Tuesday that he is seeking a $1-billion rollback in electricity rates for customers of three major utilities that serve 26 million Californians.

“This is good news to the 85% of California ratepayers ... who felt the brunt of the energy crisis,” Davis said at a news conference. “This reduction will provide relief to ratepayers and help California’s economy.”

Davis said his administration would ask the state Public Utilities Commission to approve rate reductions for customers of Southern California Edison, Pacific Gas & Electric Co. and San Diego Gas & Electric.

Utilities commission officials said bills could decline as soon as July 1. Residential customers would save an average of $30 a year, while small businesses would save $60 to $120.

Davis said there would be no electricity rate increases next year and suggested that there could be further reductions.

Edison has a pending utilities panel request for a $1.25-billion reduction in rates that would shave 8%, roughly $6, from the average homeowner’s monthly utility bill. Edison’s director of revenues and tariffs, Akbar Jazayeri, said the governor’s proposed reduction, if granted and spread equally among Edison’s customers, would provide an additional 5% in rate relief.

In addition, California has asked federal regulators to order billions of dollars in rebates from energy companies it accuses of manipulating the market during the energy crisis of 2000 and 2001. Rates “will go down in future years if Washington gets off its duff, does its job and returns $9 billion stolen from ratepayers,” Davis said. So far, regulators have indicated a willingness to order only a fraction of that amount.

The governor’s call for a rate reduction fulfills a promise he made in March to return money to consumers as early as this year and comes as he faces a recall effort. He is also scheduled to update his plan today for addressing the state’s estimated $35-billion budget shortfall over the next 13 months.

Davis said the timing of his electricity rate announcement was determined by an earnings report filed Tuesday by PG&E; that the utility owes the state water department $539 million for power purchases. The filing allowed the water department to calculate how much cash it would have on hand for rate relief.

The cut was possible, the governor said, for several reasons:

The state water department has stopped buying electricity for the customers of investor-owned utilities and needs smaller financial reserves. The utilities have regained enough financial strength to buy electricity on the spot market. And the state has successfully encouraged conservation and creation of new power plants.

During his administration, Davis said, enough new power plants to supply 4.5 million homes were constructed in California.

Announcement Praised

Utilities panel President Michael R. Peevey called the governor’s announcement “very good news for consumers.” He said the commission would expedite the rate reduction.

Commissioner and former President Loretta M. Lynch, who often is at odds with Peevey, said, “I think this is a good start.”

Lynch noted that the utilities and the water department have collected billions of dollars extra from ratepayers since the cost of electricity plummeted in June 2001. She said the utilities panel needs to scrutinize the water department “to make sure that every penny of excess cost is returned to ratepayers this year.”

Consumer groups were generally pleased about the governor’s rate reduction announcement.

Mike Florio, a senior attorney for the Utility Reform Network, said: “This really is a red-letter day.... If you look back to a little over two years ago, to those dark days ... when we were burning through $250 million a week in the spot market, we really have come a long way in California.” Florio, a Davis appointee to the board of California’s power grid operator, appeared at the governor’s news conference.

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, said the rate reduction was just a down payment on the billions of dollars that are due California electricity customers. “What about the other $69 billion in overcharges, surcharges and bailouts associated with the deregulation debacle?” he asked. “Consumers should get that money back too.”

California’s energy troubles began in May 2000, when the state’s deregulated market experienced soaring power prices and supply shortages. Customer electricity rates were frozen in Edison and PG&E; service areas so the utilities were unable to recoup the full cost of electricity from their customers.

After higher prices plunged the utilities into financial crisis, the California Department of Water Resources began buying billions of dollars in electricity for utility customers in January 2001.

Bankruptcy Filing

PG&E; later filed for bankruptcy protection from creditors, and Edison sued the utilities commission, contending that state energy policy was driving the company to ruin.

PG&E; is still locked in a contentious bankruptcy proceeding.

“This is good news for California consumers,” spokesman John Nelson said of the Davis announcement. “The reduction in [the Department of Water Resources’] revenue requirement should result in a reduction in the amount our customers should have to pay.”

Utilities panel Commissioner Susan Kennedy said the panel has the discretion to lower the rates for PG&E; customers before the bankruptcy proceedings are finished, but needs to look at that issue in the context of the bankruptcy.

Edison and the utilities panel have reached a settlement, and Edison expects to recover its energy crisis-related losses by July. Thus, it can begin providing cheaper electricity to its customers.

Both utilities have achieved enough financial stability to start buying power and are managing the energy contracts negotiated by the state during the energy crisis.

That successful transition eliminated the need for the Department of Water Resources to hold billion-dollar-plus reserves, spokesman Oscar Hidalgo said.

The reserves were necessary to appease Wall Street credit-rating agencies and lenders, because the water department financed its energy crisis operation by selling nearly $12 billion in bonds to be paid back by utility customers.

Dominic DiMare, lobbyist for the California Chamber of Commerce, said the business owners that his group represents are pleased by the governor’s announcement. They would be watching closely, he said, to ensure that the utilities panel decreases rates more dramatically for businesses than homeowners.

When the panel raised electricity rates in early 2001 to help cover power crisis costs, it raised rates most heavily for the utility’s business and industrial customers.

“We are hoping and feel strongly that rates should be reduced in proportion to the way they were increased,” DiMare said.

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Vogel reported from Sacramento, Reiterman from San Francisco.