Davis Proposes Tiered Plan To Boost Rates

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Governor wants slightly lower increases than PUC adopted

The San Francisco Chronicle

After months of denying that rate increases were needed to pull California out of its energy crisis, Gov. Gray Davis yesterday proposed an average 37 percent increase for residential users served by PG&E.

The governor’s electricity rate increases are slightly lower than the ones adopted by the PUC last week. He said about half of the state’s residential customers would see no increase at all.

Davis has blamed the energy crisis on his GOP predecessor, out-of-state energy generators and federal regulators.

But in a rare statewide television address last night, he acknowledged that pointing the finger would not solve California’s flawed deregulation plan that plunged utilities into debt as wholesale energy prices rose and retail rates remained frozen.

“It’s become increasingly clear . . . that with rising natural gas prices, the (Federal Energy Regulatory Commission’s) failure to control costs and the state’s lack of supply, that some rate increases are necessary to keep our lights on and our economy strong,” Davis said.

By embracing a rate increase lower than the PUC‘s, Davis tried to portray himself politically as a leader, but he also put himself in jeopardy should his plan fail.

Last week, the PUC approved a rate increase that would average 40 percent. That includes making permanent a temporary 10 percent average increase adopted by the commission in January.

Davis also would make that average 10 percent increase permanent.

The PUC‘s rate would lift the customer’s price per kilowatt by about 3 cents. Under Davis’ plan, the rate for PG&E customers would be 2.44 cents.

Consumer advocates blasted Davis’ plan as a bailout for investor-owned utilities.

“Gov. Davis blamed everyone but himself tonight,” said Harvey Rosenfeld, president of the Foundation for Taxpayer and Consumer Rights.

Rosenfeld said Davis must have the courage to stand up to out-of-state power generators and, if they don’t reduce their profits to fair levels, impose taxes on their windfall gains. If that doesn’t work, he said, the state should move to seize power plants.

Even though Davis’ plan would generate less revenue than the PUC‘s increase, he says he can do more with less.

The governor’s plan would eliminate a 10 percent rate increase scheduled to kick in next March. The PUC‘s would not.

Davis said his slightly lower rate not only would provide enough money to pay off a bond California is set to issue for power purchases but also would pay off a portion of PG&E and Southern California Edison‘s $14 billion debt.

The remainder of the debt would be erased by the state’s purchase of the PG&E and Edison‘s transmission lines, an idea Davis again endorsed last night.

The PUC‘s rate increase did not address the utilities’ debt.

The state will have to issue a bond of somewhere between $12.4 billion and $14 billion to cover power purchases, said John Stevens, Davis’ top energy adviser. The state has spent about $4 billion so far.

All of this can be in a smaller rate increase because the governor’s office has different numbers, Stevens said. The numbers will be provided to the board, but have not been made available yet.

PUC Commissioner Carl Wood said the board would review Davis’ plan.

“There isn’t a big gulf,” he said. “These are more recent numbers. But the PUC has the ultimate responsibility to make rates.”

While the PUC rate increase has already been adopted, the tiered structure has not.

Reaction to the speech was not overwhelmingly supportive.

A statement by PG&E said it supported the governor’s efforts to increase conservation but said the speech did not go far enough.

“However, the state’s power crisis has been ongoing for nearly a year now, with little relief in sight,” the statement said. “Unfortunately, the steps the governor announced tonight still do not appear to offer a comprehensive solution to resolve California’s energy crisis.”

Republicans were not any more supportive.

Davis’ only announced 2002 Republican challenger said Davis had failed to take responsibility for his “mismanagement” that had made the crisis worse.

“Gov. Gray Davis looked us right in the eye and said nothing,” said Secretary of State Bill Jones. “The first responsibility of leadership is to tell the truth. Gray Davis needs to level with the people of California — not continue to tell them bits and pieces that he thinks they want to hear.” The admission that rate increases are necessary is a politically dicey move for Davis, but one widely seen as necessary.

The Democratic governor had come under increasing pressure to take decisive action after the PUC‘s action last week.

But Davis political adviser Garry South said Davis needed to take the time to make sure the numbers were right.

“I think people understand when a public official comes forward and looks them in the eye and says here is what we need to do to solve it,” he said. “The governor clearly has the authority to ask the PUC to do something.”

Davis said he opposed the increase at the time, and denied having any knowledge of the plan, despite having appointed a majority of the board.

In his speech, Davis “urged” the PUC to consider the plan.

Davis had maintained since last fall that he wanted to work to solve the energy crisis without a rate increase.

“If I wanted to raise rates, I could have solved this in 20 minutes,” Davis said in February.

Even with the rate increase there are still many pieces of the energy puzzle that must be solved.

The rate increase will cover only the utilities’ back debt if there is an agreement to sell the transmission systems. So far, those negotiations have progressed very slowly.

Davis urged conservation as the main way to get through the summer.

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

He lauded two conservation bills passed by the legislature yesterday that provide about $1.1 billion for various programs, such as refrigerator trade-ins.

Also yesterday, Reliant Energy, one of the out-of-state generators providing California with power, won a court ruling yesterday that means it no longer has to make forced sales of electricity to the state.

The Ninth Circuit Court of Appeals lifted an injunction from a lower court that forced the energy provider to sell to California, no matter whether it was paid or not.

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