Davis admits rate hikes unavoidable in any plan

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Contra Costa Times

SACRAMENTO _ After months of assuring Californians he could find a solution to the state’s energy crisis without raising electricity rates, Gov. Gray Davis used a live televised address Thursday evening to reverse course and endorse a rate hike.

His plan, which would replace one enacted by the state Public Utilities Commission, calls for a 2.44 cent per kilowatt-hour increase for residential customers of Pacific Gas & Electric, in addition to a 1-cent increase approved earlier this year and made permanent last week.

By comparison, the PUC rate hike approved last week was for a new 3-cent increase on top of the 1-cent hike for all customers, including residential, commercial, industrial and other classes.

But because the PUC has yet to determine how much of the rate increase would fall on residential consumers, it is unclear exactly how much better Davis’ plan would be for them.

The governor’s proposal will be forwarded to the PUC.

“As you know, I have fought tooth and nail against raising rates,” Davis said in his address. “It’s 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 strong.”

The rate hike would be used to repay $20 billion the state would borrow by selling bonds. The loan would be backed with the state’s promise to repay it with a portion of the utility rates collected each month from consumers.

What is new in Davis’ plan is that it cuts in the utilities, who will get $8 billion so they can pay off their creditors. The PUC plan didn’t include anything to pay off the utilities’ outstanding debt and instead committed money from the rate increase to future power purchases.

To cure the utilities’ financial ills, Davis’ plan also would give them whatever they net by selling their transmission lines to the state for $7.6 billion. Negotiations over that deal are “close to conclusion” with Southern California Edison and active with PG&E, according to sources familiar with the state’s position.

The utilities said after Davis’ address that his plan fell short of addressing their problems, including the billions of dollars of debt they ran up since last year because of their inability to pass on the skyrocketing wholesale costs to consumers.

“Unfortunately, the steps the governor announced tonight still do not appear to offer a comprehensive solution to resolve California’s energy crisis,” PG&E said in a statement.

Edison was only slightly more positive.

“After many months of this crisis, there is very little remaining time for effective action,” the company said. “We will look to what actions follow the governor’s words tonight.”

Consumer advocates were equally critical, knocking Davis for reversing tack on his stand against rate hikes.

“After promising us no rate increases, the governor has capitulated to Wall Street and energy industry companies,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, which is planning to bring a measure to voters to block any electricity rate increase.

Even though Davis called for a lower rate hike than the PUC enacted, his plan would increase the size of the bond issue to $20 billion from about $12 billion under the PUC plan.

So how can Davis make the pie bigger with a lower rate increase? The administration argues that that can be done by redistributing the flow of money and by tossing out “premature” and overly pessimistic PUC assumptions about how much would be required to make the state whole.

But it also means extending the term of the loan. “By amortizing over a longer periodwe minimize the pressure on current rates,” said a source familiar with the state’s position.

To get a share of that pie, the utilities would have to agree to drop their lawsuit against the state, to sell it some assets and to use their remaining generators to provide low-cost power for a decade.

The governor’s plan is similar to the proposal to implement that rate hike that was also put forward last week by PUC President Loretta Lynch.

“We seem to be basically on the same page as the governor, which is a good thing,” said Paul Clanon, energy division director for the PUC.

“We’ll have to get into the specifics of the governor’s proposal over the coming days and weeks.”

Both the governor and Lynch’s proposal are tiered _ they impose higher rates on those who use more electricity and no increases on those who use less than 130 percent of a baseline allocation of electricity that is determined by state regulators. The PUC determines baseline usage by region, based on geography and historic usage in different areas of the state.

Under both plans, those who use between 130 percent and 200 percent of baseline would pay slightly higher bills, and those who use more than 200 percent would pay the most.

But while Davis said that 55 percent of PG&E‘s residential customers are protected under his plan because they use less than 130 percent of baseline, the utility disputes that figure.

PG&E said that only 31 percent of its customers have not exceeded that amount in the past year.

Legislative leaders responded along party lines. Assemblyman Fred Keeley, D-Santa Cruz, said Davis struck the right tone. Keeley has taken the lead in the Assembly on energy legislation.

“I thought that his tiered rate proposal for California is the right architecture because it does reward conservation and sends the appropriate price signals,” Keeley said. “I don’t believe there’s enough data in the public domain to be able to judge whether this rate increase is sufficient.”

Assembly GOP leader Dave Cox, R-Sacramento, said Davis’ calls for more supply and conservation were not novel.

“This was a political speech, warm and fuzzy, and it didn’t say anything,” Cox said.

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