Davis fights for a cap on power rates

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He says thousands of utility workers could face layoffs

San Diego Union-tribune

Thousands of utility workers could be laid off in California if the electricity crisis continues, Gov. Gray Davis warned the Federal Energy Regulatory Commission in Washington yesterday.

Davis — participating in the meeting via telephone from Sacramento — joined U.S. Energy Secretary Bill Richardson in pressing for a cap on wholesale electricity rates.

But FERC declined to even discuss price controls.

Instead, in a closed-door session that lasted seven hours and is scheduled to continue today, the commissioners encouraged California utilities to sign long-term deals with such companies as Enron, Duke and Reliant Energy that would lock in electricity rates for five years.

Consumer groups, who were barred from participating in the meeting, complain that the long-term deals might lock in overly high rates. And they worry that the utilities will use the crisis to push for higher rates to consumers.

Tomorrow, Pacific Gas & Electric and Southern California Edison, which employ 200,000 workers and supply energy to 23 million consumers in California, are to appear before the California Public Utilities Commission to ask permission to levy higher rates on consumers.

The two investor-owned utilities have a combined debt of about $8.1 billion because their retail rates are frozen under deregulation and they cannot pass the skyrocketing wholesale costs of power on to their customers.

In contrast, San Diego Gas & Electric Co. is not in immediate financial peril because it is the only utility to have met all the terms of deregulation and was therefore given more authority to pass costs on to consumers. Its retail rates also are frozen, but the state has guaranteed that SDG&E will be allowed to recover its debts, giving SDG&E more financial security than the other two utilities.

Nevertheless, SDG&E projects that its debt will reach $420 million by the end of the month, and it has joined the other two companies in asking the utilities commission for permission to raise rates.

“Even though we have good standing in the credit markets, we’re definitely in a serious situation that is not sustainable over a long period of time,” said SDG&E spokesman Doug Kline.

A Wall Street credit-rating firm, Standard & Poor’s, is scheduled to discuss the California utilities today.

Within the past week, the firm has put PG&E and the state Independent System Operator, which oversees the state’s energy grid, on “credit watch,” meaning the firm is considering downgrading their creditworthiness. If that occurs, it will become harder for either entity to borrow money by issuing bonds.

“We are very close to the point where we will no longer be able to buy power for our customers,” said Ron Low, a PG&E spokesman. “We cannot continue to buy power at 50 cents and sell it at 5 cents.”

According to published sources, the utilities are pushing to boost consumer rates by 20 percent to 30 percent, while the Davis administration is trying to hold the increases to 10 percent. Davis warned FERC yesterday that bankrupting the two utilities could result in power outages, potentially disrupting vital services such as traffic lights and hospitals.

But there is growing skepticism about whether such a boost is needed.

Doug Heller, consumer advocate at the Foundation for Taxpayer and Consumer Rights, said that even a 10 percent increase would be unfair to the public, which was promised a 20 percent decrease under deregulation.

“There is no reason for placing the burden of the failure of deregulation on California’s ratepayers,” Heller said. “The utility shareholders did very well receiving all the benefits of deregulation until this summer. The shareholders who got the benefits should also assume the risk.”

Davis met with legislators and utility officials in Sacramento yesterday to discuss the rate increase. He said he does not want to do anything that would unfairly burden consumers. But he made it clear that rates will go up.

“There is no question that everyone has to be part of the solution,” he said.

However, Davis said he and the state’s legislators want proof that the two utilities are not exaggerating their financial plight.

“You’ve heard of a win-win situation; this is lose-lose,” said Senate President Pro Tempore John Burton, D-San Francisco, referring to the negotiations over rate hikes.

Davis pinned the blame for the utilities’ woes on power suppliers and marketers, saying their excessive prices had endangered the 1996 law that deregulated the industry.

Davis warned that if deregulation was overturned in a reaction to the high price of power, “the energy analysts (on Wall Street) would eat them for lunch, because their greed would be the undoing of deregulation in America.”

As regulators in Sacramento and Washington, D.C., battled over the rate issue, Northern California once again entered a Stage 2 energy emergency after a faulty power line in the Central Valley was shut down.

At 4 p.m. yesterday, the Independent System Operator invoked powers granted by Energy Secretary Richardson last week to call for emergency supplies of electricity from throughout the Northwest.

“I hope this underscores the need to get more generating facilities sited and built,” said Kellan Fluckiger, chief operations officer at the ISO. “This is part of a long-term trend of depletion of resources that has put us in a situation that is looking bleaker and bleaker.”

Fluckiger said that unless Northwestern power suppliers provide more electricity — as he expects — Northern California will run more than a 50-50 risk of incurring blackouts.

Meantime, in Washington, the talks continued about entering long-term contracts. FERC Chairman James Hoecker opened the talks by suggesting that the contracts could be set as low as $60 to $65 per megawatt-hour, compared to the $74 hour rate he suggested last week.

At the end of the day, Judge Curtis Wagner, an administrative law judge at FERC who is overseeing the talks, said he was optimistic that the talks would produce some kind of forward contract by the end of the month.

As the talks go on, Davis is lobbying President Clinton to appoint a San Diegan to a vacant seat on the five-member FERC board that must be held by a Republican.

The governor said he is recommending three San Diegans who he believes would bring “appropriate sensitivity to their task.”

He did not release names, but one of the candidates is businessman Tom Stickel, who serves on the board of Sempra, the parent firm of SDG&E.

Another San Diegan being mentioned is Sempra executive Tom Sayles, who served two years as state secretary of business, transportation and housing under Gov. Pete Wilson. Later, Wilson appointed him to the University of California Board of Regents.

“Because California is riding point in this experiment, because we are further down the road to deregulation for better or worse — and it may be worse — I think we are entitled to have at least one of the FERC members from this state,” Davis said.

Consumer Watchdog
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