San Jose Mercury News

SACRAMENTO, Calif. _ In a rare statewide television address, Gov. Gray Davis on Thursday abandoned his struggle to keep electricity rates from skyrocketing and proposed an increase of about 26.5 percent for almost half of the state’s residents.

Though he had vowed repeatedly to protect Californians from footing the bill for the state’s failed deregulation plan, Davis offered an approach that appears similar to the rate structure adopted last week by utilities regulators to prevent the crisis from deepening.

Last week, Davis had insisted that he didn’t know that the Public Utilities Commission intended to raise rates and called the decision “premature.” Davis did not indicate in his speech what led him to reach his decision, but a top adviser said Davis acted when he became confident the numbers required it.

“I have fought tooth and nail against raising rates,” said Davis, who appeared somber and slightly nervous during the five-minute speech carried live by more than 75 stations and C-SPAN. “It has become increasingly clear, however, that with rising natural gas prices, the feds’ failure to control costs and the state’s lack of supply that some rate increases are needed to keep our lights on and our economy humming.”

Under his plan, the Democratic governor said, more than half of the state’s residential customers would not see higher energy bills. But residential customers who use more than 130 percent of their baseline usage would see increases. Customers using the most electricity would face a jump of 34.5 percent, on average.

Rates for businesses would increase about 30 percent.

The governor’s plan also calls for Northern Californians to shoulder the biggest rate increases. Customers of Pacific Gas & Electric Co., the utility in the worst financial condition, would see their electric bills rise an average of 28 percent if they use more than 130 percent of their baseline usage.

Although Davis stressed that “more than half of you won’t pay a penny more,” figures from the utilities commission and PG&E suggest far more customers may be subject to the governor’s rate increase.

PG&E spokesman Ron Low said that only 31 percent of the utility’s residential customers used no more than 130 percent of their baseline last year.

The governor offered scant details about the proposal, but the plan appears similar to the one adopted by the Public Utilities Commission. “It doesn’t look like there is a big gulf between the overall numbers,” said Commissioner Carl Wood.

The PUC plan _ the largest rate increase in state history _ envisioned electric bills for homes and apartments going up by as much as 36 percent for those who use the most energy.

Both proposals come on top of a 9 percent residential rate increase approved in January by the PUC that was intended to be temporary, but is now expected to become permanent.

Davis contrasted his plan with the PUC plan, saying he plans to earmark a portion of the revenue to help the utilities pay off some of their more than $12 billion debt they ran up purchasing power last year.

To receive that deal, Davis said, the utilities would need to agree to provide cheap power from their own plants for a decade, agree to sell the state their transmission lines and drop their lawsuits that could lead to higher rates.

The speech marked a dramatic turning point for Davis, who entered the energy crisis with a pledge to derail any plans to raise rates for average Californians. For months, Davis expressed his “hope and expectation” that the crisis could be resolved without forcing Californians to pay dramatically more for electricity.

Davis and the Democrat-controlled Legislature are still struggling to find a way out of the energy crisis that has brought two rounds of rolling blackouts, forced PG&E and Southern California Edison to the brink of financial collapse and threatened to push California into an economic tailspin.

But as the complex pieces of the state’s rescue plan failed to come together and the price tag continued to rise, Davis and lawmakers were left with few options.

While Davis steadfastly stood by his “hope and expectation” that he could avoid rate increases, most other state leaders had already come to the conclusion that there was no way out of the crisis without them.

But the governor recently softened his stance and said he would support higher energy bills if he saw no other options.

Some consumer activists attacked the governor Thursday and vowed to fight the rate increase at the ballot box.

“The governor’s plan is: Turn out the lights, get your wallets out and wait in the dark until the utility bill comes,” said Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights.

Some Californians who watched the speech also expressed disappointment that Davis had given up on his fight against rate increases.

“He said he didn’t want to raise prices but he did anyway,” said Craig Vomvardieri, 46, of San Jose. “Twenty-six percent still sounds like a big chunk of change to me. But I guess he’s trying to deal with it the best he can.”

Felix Hill, 81 of San Jose, said Davis did not offer real solutions: “He’s just trying to save his political hide.”

Republicans criticized the governor for waiting so long to act on a crisis that they charged could have been addressed with less painful remedies last year before the problems became so severe.

State Sen. Tom McClintock, R-Thousand Oaks, said Davis was leading the state down the path of “heavy taxes, oppressive regulations, new bureaucracies, endless mandates to conserve even more, and ultimately sky-high prices and rolling blackouts.”

The address marked the first time since his January State of the State message that Davis has taken his case directly to the public. And it was the first time since 1992 _ when GOP Gov. Pete Wilson talked about the recession _ that a governor has delivered such a speech to Californians.

The crisis has created a political challenge for the Democratic governor, who until recently has enjoyed strong support in the polls. His popularity has taken a hit in recent weeks in the wake of growing criticism from prominent members of his own party, the PUC‘s massive rate increase and a surprise series of blackouts.

After months of work, state leaders have little to show for their efforts to bring the crisis under control. The state continues to spend about $50 million a day to buy electricity, a job it took on in January when PG&E and Edison lost their ability to buy power themselves because of mounting debts.

Since then, Davis and his advisers have been trying to piece together a bailout plan for the two companies. The plan, which calls for the state to buy 26,000 miles of transmission lines from the two troubled utilities and San Diego Gas & Electric, has languished.

Davis has expressed hopes of completing the deals soon, but talks with PG&E have been put to the side while the governor tries to reach an agreement with Edison.

Another key piece of the rescue plan _ a summertime conservation _ has also been stalled by special interest wrangling.

More than $1.1 billion in conservation programs were hung up this week by efforts by the agriculture community to win special protections from blackouts.

After two chaotic days, sorting through pages of last-minute changes proposed by lobbyists and rounding up votes including a threat to intercept one senator at the airport and bring him back to vote, lawmakers narrowly approved the bills.

The funds _ $710 million in SB 5by Sen. Byron Sher, D-Redwood City, and $408 million in AB29by Assemblywoman Christine Kehoe, D-San Diego _ will pay for a range of programs, from grants for weatherizing homes to rebates for new energy-efficient appliances.

In his address, Davis touted conservation as the best way to ward off higher energy bills.

“The more you use, the more you pay,” Davis said. “The more you conserve, the more you save.”