In California, Reversal on Energy Rates

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The New York Times

Bowing to the inevitable, Gov. Gray Davis of California tonight dropped his longstanding opposition to higher electricity rates, proposing increases of up to 46 percent for the largest users and warning in a statewide televised speech that only aggressive conservation and increased generating capacity could solve the state’s long-term energy problems.

In some ways, Mr. Davis’s proposal is nearly identical to rate increases passed by the state’s Public Utilities Commission over his opposition just last week. But aides said Mr. Davis’s plan was more sharply focused on rewarding conservation, put a lighter burden on commercial users, applied to all three of the state’s major investor-owned utilities, not just two, and included about $8 billion to help pay down the utilities’ back debts.

In all, aides to the governor said, Mr. Davis’s proposal, which the utilities commission is expected to adopt, might require an average increase just under the 3 cents a kilowatt hour for residential customers that the commission approved. About half of households would face no increase, while nearly a quarter of households would see increases of 10 percent. Those who used the most power would face increases of 37 percent, plus a 9 percent surcharge adopted this winter that applies to all and would be made permanent.

“Here’s the point: The more you use, the more you pay,” Mr. Davis said, speaking calmly but forcefully from his office in Sacramento in the opening minutes of early evening newscasts around the state. “The more you conserve, the more you save. Conservation is our best short-term weapon against blackouts and price-gouging.”

But consumer groups immediately attacked the governor’s plan.

“He’s just juggling the numbers around so it’ll look like he’s raising rates less,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, who has threatened a ballot initiative on energy next year. “This is basically a smoke screen to cover the real deal here, which is that the governor is going to make the ratepayers bail out the utilities.”

Mr. Davis’s proposals would not require the Public Utilities Commission to rescind its action of last week. Instead, the governor’s plan amounts to his preferred road map for structuring the new rates to “reward those who conserve and motivate the biggest users to cut back,” a process that commission officials said last week would have to be worked out over the next month.

Under a previous commission decision, rates would rise another 10 percent next year when a cap is lifted, all but guaranteeing that Californians who use the most power would pay among the very highest rates in the nation, if not the highest.

Mr. Davis’s five-minute speech tonight followed months of criticism from both political parties here and analysts on Wall Street that he was not moving swiftly or decisively enough to deal with a shortage of electricity resulting from the state’s failed experiment with partial deregulation of its electricity market. It amounted to his most outspoken effort yet to put the crisis in context and convince Californians that he was moving to address it.

He began that effort in his first sentence, referring to what he has preferred to call the state’s energy “challenge” directly as a “crisis,” adding: “The only long-term solution is to build more power plants. We must also cut back on consumption and stabilize the utilities. But prices won’t fall and supplies won’t be truly reliable until we generate more power than we consume.”

In its prepared response, the state’s Republican Party attacked the administration for imposing “the biggest electricity rate increase in history,” and attacked Mr. Davis’s support for buying the utilities’ transmission lines and creating a new state power authority that could build power plants if the private sector did not. They called instead for the governor to “waive every regulation that stands in the way of power plant construction,” and to return the state’s multibillion-dollar budget surplus as a rebate to taxpayers.

Aides to Mr. Davis said that unlike the Public Utilities Commission‘s action of last week, which applied only to the Pacific Gas and Electric Company and Southern California Edison, the state’s two largest investor-owned utilities, this plan would include San Diego Gas and Electric.

And, aides said, the governor’s staff now has a better estimate of the costs the state will have to bear for buying power on behalf of the near-bankrupt utilities, which found themselves virtually shut out of the wholesale power market after wholesale prices were deregulated while retail rates remained capped. The aides said the proposed rate increases would produce enough money to pay down about $8 billion of the utilities’ estimated debts of more than $14 billion, a crucial step in returning them to financial stability.

The state would help resolve the rest of the debt by buying the utilities’ transmission lines, financed with bonds that would be repaid by shifting a part of electric rates reserved to pay for transmission costs from the utilities to the state.

Individual monthly bills would vary widely.

But the governor’s staff provided some examples for residential users that suggest that a Southern California Edison customer who used less than 130 percent of a “base line” average level would face no increase in the average monthly bill of $30.

By contrast, households that used 130 percent to 200 percent of base line levels would face an increase of $6, to $69, in their monthly bills, while those using more than double the base line amount would face increases of $41 a month, to $171.

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