California Approves Huge Increases in Electricity Rates

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Boosts as High as 46% Decried, Defended

The Washington Post

The retail price of electricity in California began soaring today as state utility regulators desperate to solve the nation’s most dire energy crisis resorted to raising consumer rates by as much as 46 percent.

The rate increases, approved unanimously by the California Public Utilities Commission, take effect immediately and are structured to hit the hardest those consumers who do not take significant steps to reduce their energy consumption. In all, 25 million California residents could pay higher energy bills.

The decision may help reduce the threat of rolling blackouts across California during the summer and could save the state from spending billions of dollars more to bail out its bankrupt utility companies and purchase emergency power supplies. But the new rate increases also bring enormous political risks.

Since the lights in California first flickered off in January because of power shortages, Gov. Gray Davis (D) has adamantly resisted all calls for rate increases, saying consumers should not be asked to solve the massive problems that the state’s switch to partial electricity deregulation has created.

Davis and other state leaders have feared that any additional substantial increases in monthly utility bills would ignite a ratepayer’s revolt. California had already imposed an emergency 9 percent utility rate increase earlier this year.

Today, signs of a public backlash were evident. As utility regulators approved the rate increases, protesters chanted: “Hell, no, we won’t pay!”

Consumer groups immediately denounced the move, saying it will encourage the out-of-state suppliers that California relies on for much of its electricity to gouge residents with higher wholesale prices.

“This is like giving crack to an addict,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, in Santa Monica, Calif.

Rosenfield said Davis will soon feel the wrath of consumers. “This is his worst nightmare,” he said. “What he’s about to witness is a populist rebellion that is equal to the property tax revolt of the 1970s.”

Three of the five members of the state’s utility commission are Davis appointees. And while the governor has not come close to supporting rate increases, he took no public steps in recent days to discourage the commission from taking such a step.

“I can’t order or direct an independent body,” Davis said on Monday.

Today, Davis called the rate increases premature. “We do not have all the appropriate financial numbers necessary to make a decision,” he said. “Until we do, I cannot support any rate increase.”

But Davis also softened his position, saying that, if an increase becomes “absolutely necessary” for the state, “I will support one that is fair and do my duty to convince California of its necessity.”

California’s two largest utilities, Pacific Gas & Electric and Southern California Edison, are saddled with $ 13 billion in debt and are unable to buy power on the wholesale market because their credit is so poor.

Under California’s power deregulation law, the utilities are prohibited from passing on the wholesale costs of electricity to consumers until next year.

For weeks, Davis and state lawmakers have been trying to work out a plan that would give the utilities billions of dollars to avert bankruptcy in exchange for some of their most valuable assets, such as their network of power transmission lines. But the complex negotiations have not yet produced a deal. In the meantime, the state is bleeding its treasury to buy immediate and long-term power directly from wholesale suppliers. In the past two months, it has spent more than $ 4 billion.

But the power shortages that California has experienced this year pale in comparison to what state officials are bracing for in the summer, when the hot weather will greatly increase the demand for power. California may be 5,000 megawatts short of the electricity it needs. A megawatt provides enough energy to power about 1,000 households.

Loretta Lynch, who heads the state’s Public Utilities Commission, said the panel approved the rate increases because it believed it had no other choice at this stage of the state’s struggle to resolve its energy crisis. The rate increases could boost electricity costs per resident by as much as $ 200 a year.

Lynch predicted that, by imposing a rate structure that forces consumers who exceed the recommended levels of energy usage to pay the most, the plan will encourage conservation at a time when California needs it most. Consumers who take steps to conserve might not see any increase in their monthly rates.

“Electricity hogs will have to pay the most for the electricity they use, especially in the summer,” she said.

Consumer Watchdog
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