The state Public Utilities Commission voted unanimously Thursday to grant emergency rate increases to two cash-strapped utilities that serve 25 million Californians.
But Wall Street thinks the increases may be too little, too late, to keep the companies afloat. And consumer advocates criticized the rate hikes, arguing customers should not be forced to pick up the tab.
PUC commissioners voted 5-0 to approve rate hikes that they had recommended a day earlier. The increases will be about 9 percent for homes, and between 7 percent and 15 percent for businesses, with the largest companies paying the most. The hikes will affect about 10 million customers.
The 90-day increases are one-third the amount sought by Pacific Gas and Electric Co. and Southern California Edison Co., who say they face financial ruin within weeks if they can’t get more cash to buy energy that’s distributed to their customers.
The crux of the utilities’ problem is this: They have been unable to recoup the money spent on wholesale electricity. They buy power for roughly 30 cents a kilowatt hour and, because of a rate freeze, they can charge customers only about a fifth of that amount.
The rate freeze was part of California’s 1996 deregulation law. It was set at what was then a generous level to ensure utilities a steady stream of revenue until they finished selling off assets and making the transition to deregulated companies. The PUC says the transition hasn’t been completed.
Earlier this year, the cost of wholesale electricity skyrocketed. The rate freeze prevented the utilities from charging customers more to cover those costs.
The result is that PG&E and SoCal Edison, who serve more than three-fourths of California’s population, have lost more than $9 billion since June. Wall Street has threatened to downgrade the two investor-owned utilities to junk bond status unless an assured cash source is found and fast.
”We are voting the epitaph for deregulation in California today,” PUC commissioner Carl Wood said. ”Deregulation is dead.”
Commissioners called on the governor and the state Legislature to come up with solutions to the power crisis, saying federal officials have done little to solve the problems.
The state’s deregulated electricity grid, stressed for months by high demand, scant reserves and tight imports, has been pushed to the brink of widespread blackouts. The need for electricity has sent wholesale power prices dramatically upward.
David Bodek of Standard and Poor’s, a New York credit-ratings service, had said that the proposed increase still leaves the utilities unable to cover the high wholesale prices. He said the move ”would suggest that the commission is not committed to preserving the utilities’ financial viability nor the utilities’ financial integrity.”
Bob Glynn Jr., head of PG&E Corp., the utility’s parent company, was equally pessimistic.
”I’ve got a fourth-grade grandson that can do the math on this. If you’re buying at 27 cents and selling at 7, you’re going to run out of money,” Glynn said.
PG&E had requested an immediate 26 percent rate hike and SoCal Edison had asked for 30 percent, but Gov. Gray Davis reportedly drew the line at 10 percent in private negotiations. Still, taxpayer groups were not happy with Davis’ concessions.
”This is day one of the ratepayer revolt in California,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights, which favors a ballot initiative in 2002 to reregulate the electrical industry.
Rosenfield’s associate, Douglas Heller, argued that the rate hike ”will be the first in a series of rate increases.”
The utilities had said the proposed rate increase would do little to reduce their debt, but they said it would send a strong signal to Wall Street about their financial stability.
The utilities must maintain a good credit rating to borrow money to buy power. Otherwise, they might be forced to institute rolling blackouts.
Standard and Poor’s was skeptical of rate hike’s value, saying it would make only a small dent in the utilities’ cash-flow problem.
Even if the rate increase remained in effect for a full year, not just 90 days, it would provide only $274 million for PG&E and some $234 million for SoCal Edison, the credit-ratings service said. The numbers were calculated on 1999 figures from the U.S. Department of Energy.
”It may be a question of too little, too late,” said Bodek of Standard and Poor’s.