The Orange County Register
SAN FRANCISCO _ The California Public Utilities Commission on Thursday approved modest electricity rate hikes and called for a new round of regulatory steps to solve the state’s power crisis, while Wall Street signaled that the increases weren’t enough.
The commission voted 5-0 to adopt “emergency” and temporary surcharges that will increase residential rates by 9 percent and corporate rates by as much as 15 percent. For the most part, the panel followed a recommendation issued Wednesday by its staff. But 11th-hour negotiations added new provisions that could help bail out Southern California Edison and Pacific Gas & Electric and lead to higher rates in the future.
While the commission came nowhere near granting the 26 percent to 30 percent rate increases that the utilities had sought, the panel did open the door for the companies to recover as much as $12 billion through bonds that would be guaranteed by the state. Such a move would require action from the Legislature and governor. Still, the last-minute changes were enough to prompt the head of PG&E to say he was “guardedly optimistic,” even as his company’s stock fell 29 percent a 52-week low. Antsy Edison investors also dumped that stock, which fell 12 percent.
Meanwhile, bond ratings for both companies were downgraded to just one notch above “junk” status by Standard & Poor’s Corp. That puts the utilities at the mercy of their lenders, which could declare a default and demand immediate repayment.
The Wall Street reaction indicates investors believe the threat of bankruptcy for the utilities worsened Thursday.
Consumer advocates weren’t happy, either, saying the state was rushing to the rescue of two companies that inititially supported deregulation and now should live with the consequences.
“The utilities made their bed when they helped write that law, and they now should have to lie in it,” said Susannah Churchill, legislative associate with the California Public Interest Research Group.
The PUC vote came as Democrats controlled the commission for the first time since 1987. Appointees of Gov. Gray Davis now hold three of the five seats.
“Four years ago, Californians were promised that deregulation would reduce the cost of electricity,” the governor said in a statement. “If I had my way there would be no rate increase to consumers. But given the colossal failure of California’s deregulation scheme, the PUC‘s decision was unfortunately necessary.”
Although Davis has said he inherited the deregulation framework, political opponents say he will be blamed for higher rates.
“The irony here is that you never hear Gray Davis complain about all the economic growth he inherited,” said Dan Schnur, a former aide to Republican ex-Gov. Pete Wilson. “Californians understand two things about this energy crisis: They don’t like it, and they expect Gray Davis to fix it.”
Davis’ appointees to the PUC said they had a duty to help the utilities because the companies provide an essential service to Californians.
“Utilities for 100 years have accepted the government (-granted) monopoly of service in exchange for the obligation to serve,” said PUC President Loretta Lynch. “Clearly, we are at the beginning of the process that will result in a comprehensive structure to keep the lights on in California.”
One commissioner also said the vote should signal the end of deregulation.
“Deregulation is dead because it is no longer defensible,” said Democrat Carl Wood, adding that the vote was the “epitaph for deregulation.”
The new rates – which take effect immediately – affect more than 1 million ratepayers in Orange County. The commission approved the new rates for 90 days to give the state time to thoroughly audit the finances of Southern California Edison and Pacific Gas & Electric – and their parent companies – to determine if the companies are as badly off as they contend.
If the audits show the utilities don’t merit the increases, rebates could be granted to ratepayers after three months. But commissioners, consumer advocates and energy officials said there was little hope for that.
“We’re going to have another rate increase in a couple of weeks,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights. “I think they (the PUC members) are willing to rubber-stamp whatever they can get until the public screams and bleeds.”
Edison officials left the meeting insisting that rates will have to go higher soon. But PG&E was singing a different tune, calling the vote a positive first step.
“This is the most-substantive action we have seen in months on this crisis,” said Robert D. Glynn Jr., chairman PG&E Corp.
California legislators will consider allowing Edison and PG&E to sell bonds to refinance the $11.9 billion power-buying deficit they accumulated last year, a state assemblywoman said.
“There was a discussion in our caucus, the Democratic caucus, of issuing bonds as a possibility,” said Helen Thompson, assistant speaker of the California Assembly. “It’s one thing we are looking at.”
The Legislature is in a special session convened to come up with solutions to the state’s energy crisis.
With legislative approval, the utilities could issue bonds backed by the state to recoup their power-buying costs. Such bonds would carry a lower interest rate than what the utilities would normally pay. The bonds could be paid off through fees charged to the private generating companies that move power through utility-owned lines.
Consumer advocates said they would fight the bond plan because the generating companies would pass on the fees to consumers. “There will be a bloodbath in the Legislature before such a thing could occur,” said Rosenfield. “These bonds will be dead on arrival. We will undo them in the courts or at the ballot box.”
A Standard & Poor’s official said the state-backed bonds would enable the utilities to move the power-buying debts off their balance sheets, freeing the companies to borrow more.
Most Californians are now paying higher electricity bills because of soaring wholesale electricity prices charged by out-of-state generating companies amid a shortage of in-state generating capacity. PG&E and Edison have been operating under a rate cap that was supposed to last through March 2002. Since they couldn’t pass the wholesale costs onto customers, the utilities say they have hemorrhaged billions of dollars.
Both companies have been buying electricity at 27 cents to 30 cents a kilowatt hour. They have been selling it for between 5 and 7 cents a kilowatt hour. The increase granted Thursday adds just a 1 cent a kilowatt hour to the rate they can charge, Lynch said.
San Diego Gas & Electric customers are not affected by the PUC‘s latest action. SDG&E, which has about 100,000 customers in south Orange County, has already been assured by the Legislature that it will be able to pass along its full power-buying costs to ratepayers.