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Chicago Tribune

In a move that shocked and angered consumers, the California Public Utility Commission on Tuesday voted to increase electricity rates by up to 46 percent for almost all of the state’s residents, the biggest increase in the state’s history.

The decision reversed earlier promises by state officials that consumers would not be forced to pay more and came as California struggled for a way out of a months-long electricity crisis. The crisis is expected to grow more serious during the summer, when demand for power increases.

Experts said energy prices likely would increase elsewhere as the year progresses. They also said the rising costs could have a big effect on the national economy, by creating inflationary conditions and possibly contributing to further layoffs.

“I definitely think that rising energy costs in California and across the country are adversely affecting the economy,” said Stephen Callahan, who oversees energy strategy for the professional services company PricewaterhouseCoopers.

He said the increase, effective immediately, was necessary to limit consumption as summer approaches.

$5 billion cost to consumers

Experts said the overall increased cost to California consumers could amount to nearly $5 billion.

At a stormy public meeting in San Francisco, residents railed against the decision. Some called the rate increase a surrender to “price-gouging” energy suppliers who were “robber barons on steroids.”

The meeting was interrupted with chants of “Hell no, we won’t pay.”

“We are being held hostage by a handful of energy companies,” said Harvey Rosenfield, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “Until our elected officials start acting to protect us, we are going to be at [the companies’] mercy.”

The plan designed by commission President Loretta Lynch calls for a staggered system of increases, targeting industry and residential customers who use large amounts of electricity. She said that those who limit their consumption might see no change in their monthly bills.

Under her plan, the utility companies will create profiles of average energy use by consumers. Those with high use will see increases immediately, those with low, won’t. People who continue to use electricity sparingly might not see an increase at all.

25 million people affected

Tuesday’s decision affects the state’s two major power companies, Southern California Edison and Pacific Gas and Electric Co. Together the companies serve 25 million of California’s 33 million residents

California Edison customers now pay now 7.2 cents per kilowatt hour and PG&E 6.5 cents per kilowatt hour for electricity costs.

By comparison, residential users in Illinois on average pay about 7.8 cents per kilowatt hour and New Yorkers, 9.5 cents, according to Energy Department figures.

Environmentalists, who might be expected to cheer a rate increase designed to limit consumption, saw Tuesday’s move as misguided.

“This is going to hurt some people who don’t have any choice,” said Carl Zichella, a regional staff director for the Sierra Club, referring to poorer residents.

He said it would make more sense to create a program that replaces energy-guzzling older appliances such as air conditioners, heaters, refrigerators and washing machines.

“This is what low- and moderate-income people are living with,” said Zichella, noting that such people had few options other than to use the inefficient appliances. “These are the people who can least afford the [rate] increase.”

California is in the grips of a power shortage largely because of decisions made when the state deregulated the electricity industry in the mid-1990s.

Despite warnings from some experts, most of those involved in planning deregulation were convinced that the state and the nation would have plenty of electricity, far more than needed to meet projected demand. New technologies and more efficient appliances had reduced consumption, and power generators saw no reason to build more plants.

Although some state officials predicted that a crisis loomed if the economy expanded, the power companies’ opinion prevailed, and no new generating facilities were built for a decade.

Logic that failed

State officials also ordered the big power companies to sell off a portion of their generating facilities to stimulate competition and wrote rules that prevented generators from raising prices.

The rules also bar power companies from buying electricity on long-term contracts. Sure that supply would outstrip demand, deregulators reasoned that it would be less expensive to search for bargains on the spot market where excess capacity would be sold at bargain basement prices.

But the boom of the mid- and late 1990s brought a dramatic rise in the cost of the price of natural gas, the fuel that feeds most California power plants. The electricity providers were forced to scramble and because they were barred from passing the cost increases onto customers, sank into debt.

PG&E and Edison have debts estimated at about $13 billion and verge on bankruptcy.

Tuesday’s rate increase will do nothing to help the utilities out of debt, only help them pay future bills. Their debt problem will have to be addressed in other ways.

Consumer Watchdog
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