Davis’ plan stirs talk of higher rates

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Critics of the proposed utility bailout say consumers will have to be billed more to cover bonds.

The Orange County Register

A hefty electricity rate hike for consumers would be unavoidable under Gov. Gray Davis‘ plan to bail out California’s cash-strapped utilities, according to several lawmakers, power producers and consumer advocates.

The governor continued to say his proposal, unveiled Friday, would not trigger rate hikes. But critics said his financing plan — which calls for issuance of billions in revenue bonds — would force increases of 8 percent to 20 percent so the bonds could be repaid.

This looks like complete capitulation,” said Assemblyman John Campbell, R-Irvine. There is no way this can take place without massive rate hikes. Maybe that’s the real bailout — a ratepayer bailout of Gray Davis‘ neglect.”

Campbell said his prelimi nary estimates show it would require an increase of 10 percent to finance Davis’ plan to buy utility transmission lines.

Consumer advocate Doug Heller said his estimates for the overall financial package place the rate increase at about 8 percent. Gary Ackerman, who represents a consortium of power generators, said he believes a rate increase of as much as 20 percent will be needed to make Davis’ plan work.

Consumer advocates said the problem is that Davis wants to float as much as $25 billion in revenue bonds — a financial load the state can’t carry.

Unless they can extend it out long enough to make it our children’s bailout, I don’t see how it will work,” said Heller, an energy expert with the consumer group Foundation for Taxpayer and Consumer Rights.

The bonds in the plan Davis rolled out Friday would pay for two things: up to $8 billion for the transmission lines and an undetermined amount to retire the utilities’ remaining debts. Davis and the Legislature have already approved issuance of $10 billion in revenue bonds to pay for state-financed electricity contracts.

Davis’ plan calls for paying back the revenue bonds through existing transmission- line fees that consumers pay in their monthly bills, and by the rates they now pay for electri city. For the transmission-line purchase, Davis is also looking at revenue that would come from the power generators who would have to pay to send their electricity over the state’s lines.

But a $3 billion upgrade and annual maintenance of $600 million would also have to be covered by these costs.

Davis insisted his plan would not lead to rate hikes.

All this can be done within the existing rate structure,” Davis said. If I wanted to raise rates, I could have solved this problem in 20 minutes.”

Senate Leader John Burton, D-San Francisco, said Davis’ financing plan could be done with no further rate hikes under certain conditions.

The key to making it work is getting the overall cost of energy down so that existing rates can cover costs and pay back the revenue bonds.

Those conditions would include some combination of the following: energy prices dropping as predicted, natural-gas prices falling as predicted, a tentative deal coming through that would cut by half the price utilities pay for alternative forms of energy, power generators writing off some of their debts caused by the utilities’ inability to pay, and extending from 5 years to 10 years a requirement that utilities hold on to their own power generators.

It depends on a number of factors,” said Burton. If certain things happen, than I’d say it’s possible.”

Critics of the plan said Davis is counting on several unpredictable variables that might never transpire.

They also said Wall Street will turn away from the revenue bonds unless automatic rate increases are in place to cover bond revenue shortfalls.

A group of investment bankers advising the Assembly recommended that an automatic rate increase be triggered should revenue streams prove to be insufficient for paying back the bonds.

But the governor and lawmakers bristled at such specific language.

As a result, the bill that was passed last month authorizing state energy purchases says only that the Public Utilities Commission should review the revenue stream in a few years.

This same vague language is being pitched by Davis for the latest round of revenue bonds, said Ackerman.

It clearly calls for a rate increase. This is smoke and mirrors. He didn’t use the words rate increase’ for political reasons,” he said. It doesn’t smell like it, it doesn’t look like it, and it doesn’t taste like it — but it is a rate increase.”

Lenny Goldberg, a lobbyist for The Utility Reform Network, a consumer-advocate group, said ratepayers need to realize that when Davis said there will be no increases, he was probably counting on making a temporary” rate hike permanent.

In January, the PUC approved a 90-day rate increase of 9 percent for residential customers and a sliding scale of 7 percent to 15 percent for businesses, with larger companies getting hit with the highest increases.

The framework is something we can live with,” Gold berg said.

We’ve promoted this for months. If the state buys the transmission system, this will provide something of real value to ratepayers over time.”

But Goldberg said a permanent rate increase is something we will fight again, there’s no question.”

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