Calif. lawmakers work to minimize ratepayer hit in power crisis solution

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Retail Services Report

Despite earlier official vows that ratepayers would not have to foot the bill for expensive power in California, legislators in Sacramento this week were hammering out a scheme that would have some ratepayers, perhaps only those who exceed a certain baseline of consumption, pay higher rates. They were also working on a more comprehensive bill to securitize utility debt, again through some ratepayer mechanism.

Lawmakers were hoping to move quickly on a bill, AB 1x, that would fund the long-term power contracts that the state plans to negotiate soon, and at press time the Senate Appropriations Committee was locked in arguments over which ratepayers would be asked to make up any shortfall between existing retail rates and what the state will pay for electricity.

The measure was proving difficult to design, especially after the Public Utilities Commission released independent audits of Pacific Gas and Electric and Southern California Edison that showed, in the view of consumer advocates and some legislators, that the utilities sent their parent companies a good deal of money that some believe belie their claims of, and should not look to consumers to bail them out of financial trouble. Other legislators argued it did not matter-the crisis is so great that some form of help is imperative.

Assembly President Pro tem Fred Keeley, who introduced the bill earlier this month, told the committee Tuesday that SoCal Ed customers, who currently pay an average price of 7.24 cents/kWh, would likely see no rate increase if the state is able to secure power contracts over the next three years at an average price of 8 cents/kWh. But the bill could lead to rate increases for some of PG&E‘s residential customers, who now pay 6.7 cents/kWh.

Keeley and other lawmakers amended the bill Monday to include a consumption baseline designed to shield residential users from higher prices. Under the approach, all residential customers in the state would be protected from rate boosts if they are able to stay within 130% of their established consumption baseline, which is adjusted to account for seasonal changes and a customer’s specific circumstances. A residential user that heats his home with electricity, for example, has a higher winter baseline than one who does not.

Rates for other customer classes could be revised upward if necessary to cover the state’s cost of acquiring power. At least one large user group is worried about the plan. Keith McCrae of the California Manufacturers Assn. said the proposal would almost certainly lead to higher rates for his members.

Gov. Gray Davis has viewed residential rate increases as anathema, and his finance director, Tim Gage, told the panel that the governor believes the state Dept. of Water Resources would be able to proceed with its power purchase contracts without any rate hikes. Davis, Gage said, supports the 130% baseline.

”Residential customers did not ask for deregulation,” Keeley said in explaining his amendment to shield them from higher prices.

Keeley’s proposal ran into opposition from Sen. Jim Battin, who represents desert communities in Southern California. Battin said he was worried that the bill would unfairly burden ratepayers in his district, who traditionally have high air conditioning loads in the summer. ”In my district it is not a luxury,” Battin argued.” I have senior citizens on fixed incomes who have moved into their kitchens” to save power costs.

Keeley countered that setting the baseline at 130% would protect Battin’s constituents.

The committee was wrestling with two other key issues — whether the state should cover municipal utility shortfalls as well and whether state-issued bonds to buy power would reflect a price ceiling or a floor. Once passed, the bill needs to be approved by the Senate, and would then go back to the Assembly.

Meanwhile, air quality regulators in at least three districts in California confirmed Tuesday that they are easing pollution limits for some power generation, mostly large users’ on-site units, while one state lawmaker is hoping to get a statewide waiver on restrictions for notoriously dirty emergency generating units to help interruptible customers stay in business.

State Republican Assemblyman Dennis Hollingsworth plans to introduce legislation in mid-February to grant a statewide waiver for businesses to operate emergency or distributed generation during a power emergency. Just what constitutes an emergency, however, was still being defined yesterday by the bill drafters, according to Jason Roe, an aide to the lawmaker. Under one scenario, the emergency would exist when be when the California Independent System Operator calls a Stage 2 alert, an action that prompts curtailment calls to interruptible customers, he said. Curtailment calls this year have had severe economic effects on a number of state businesses, including dairy and agricultural concerns, Roe added.

”A lot of manufacturers had to shut down or lay off workers because they don’t have a continuous power supply,” said Roe. ”If they had a waiver or incentives to use distributed generation or emergency generation they could help alleviate the drain on the grid and make the crisis not as severe.”

Hollingsworth also is working on a bill that would give owners of diesel generators incentives to convert or retrofit their emergency power units to reduce their air emissions. Interruptible customers that refuse to take their load off the grid or businesses that switch on emergency generation outside regulations could face stiff financial penalties.

Meanwhile, at least three of the state’s 35 districts that enforce the Clean Air Act have eased some pollution restrictions. The San Joaquin Valley Air Pollution Control District is allowing companies with permitted emergency generators to use them during a Stage 3 power emergency called by the ISO even if the businesses do not lose power.

The eight-county district has about 1,200 such emergency generating units, mostly diesel powered, that have been allowed to operate only in blackouts because they are heavy polluters. The units are generally 300 to 500 times dirtier than gas turbine power plants and emit toxins considered carcinogenic, said one district official.

The San Joaquin district is also encouraging owners of emergency engines to retrofit their units so they can switch them on even before a Stage 3 emergency. With emission controls, these units could operate up to 1,000 hours a year, district officials said.

The South Coast Air Quality Management District, which includes Los Angeles, had allowed essential public service providers, such as hospitals, schools and police, to operate their emergency generators up to 500 hours a year, more than double the usual 200-hour limit. The order expires Feb. 3 but could be renewed for another 10-day period, district officials said.

Further, the San Luis Obispo County Air Pollution Control District last week gave Duke Energy 30 days of relief from an overall emission rule and is considering extending the break for another 30 days. The current variance expires Feb. 10. Duke reduced its production rather than add emission controls at about the time the state’s power crunch hit, a district spokeswoman said.

The audits of PG&E and SoCal Ed released this week show what has been clear already — the companies have serious financial problems. Some analysts said the audits showed the utilities should get the rate hikes they have asked for, 20% or more.

In Sacramento, lawmakers and consumer advocates showed a keen interest Tuesday in the SoCal Ed audit, the first one released, which reported that over the last five years the utility generated net income of $ 2.7 billion and a positive cash flow from operations of $ 7 billion. Over the same period, the audit said, the utility paid $ 4.8 billion in dividends and other distributions to Edison International.

The audit noted that SoCal Edison parent Edison International ”relies on dividends from its subsidiaries, most notably SCE, to sustain its own operations.”

A state Senate source said the report has prompted some legislators to rethink their strategy of paying off SoCal Ed and PG&E‘s combined $ 12 billion debt. At the outset of the energy crisis this summer, lawmakers blamed independent generators for the high prices, and the utilities ”have done a good job of saying ‘poor us’,” the source said.

”Now this has come out . . . and it’s another shift [in] thought as we digest what the PUC was given,” he said. A spokesman for Sen. Debra Bowen, chair of the Energy, Utilities and Communications committee, however, said she was less certain of the audit’s effect. ”It’s too early to see,” she said.

In Washington this week, consumer groups launched a full attack on a proposal before the state legislature to issue state-backed bonds to bail out PG&E and SoCal Ed, saying lawmakers instead should act more aggressively to create a state power authority that would buy the utilities’ transmission and generation assets.

Consumer advocate Ralph Nader, who has been speaking out on the state’s electricity crisis since losing his bid for the White House on the Green Party ticket, blasted a bill proposed by Assembly Speaker Robert Hertzberg that would authorize state-backed bonds to securitize some or all of the $ 12 billion in ”undercollections” PG&E and SoCal Ed say they are owed as a result of paying more for power than the state allowed them to charge ratepayers.

Hertzberg’s bill, AB 18x, likely would be funded through a permanent rate hike at levels of a 90-day ”surcharge” approved Jan. 4 by the PUC, about 9% for homeowners and 15% for large industrial users. Proponents of the measure have discussed various means of compensating consumers, including issuing stock options-an idea that neither of the utilities supports.

The Foundation for Taxpayer and Consumer Rights, a Santa Monica public interest group with which Nader has aligned himself, Monday charged that the statehouse has become ”Wall Street West” as the governor and lawmakers increasingly consult with investment banking firms. The group has threatened to sponsor a ballot initiative to re-regulate the state’s power industry if lawmakers don’t resolve the crisis. The group may also spearhead a movement to unseat Hertzberg if his measure passes the Legislature, Nader said on Tuesday.

Nader said he has been in contact with Freeman, who currently is on leave to negotiate forward contracts on behalf of the California Dept. of Water Resources, which issued a request for proposals on Jan. 24. Nader said Freeman told him he was confident the state could procure power at 5 cents/kWh. ”But that remains to be seen,” Nader said, further cautioning that the state shouldn’t lock itself into contracts of longer duration than a couple years, as prices are certain to go down when additional supply comes on-line.

Meanwhile, industrial users met again with Gov. Gray Davis to work out new load-shedding programs the state can implement during high demand periods. PG&E has already used up its interruptible programs for this year already, and SoCal Ed says it isn’t far behind. A source close to the discussions said legislation is being drafted to design additional load-shedding measures. The measure would offer new programs to industrials in PG&E‘s territory that have already fulfilled their interruptible contracts, the source said.

PG&E said its request for a temporary restraining order that would force the California PUC to allow it to recover future wholesale power costs in retail rates has been transferred to the U.S. District Court for the Central District of California, which is considering a similar action by SoCal Ed.

The utility said the court’s denial of its request for a restraining order does not represent a ruling on the merits of its claims. PG&E is arguing that by refusing to allow retail rate increases to cover its higher purchased power costs, the PUC violated the Supremacy Clause of the Constitution.

Consumer Watchdog
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