Davis reps warn lawmakers of possible 50 percent power rate hike

Published on

The Associated Press

State power regulators may have to raise rates for customers of two financially strapped utilities at least 50 percent to cover the state’s power purchases on their behalf, The Associated Press has learned.

Davis administration officials told several key Assembly members Friday that the state’s power-buying for credit-poor Southern California Edison and Pacific Gas and Electric Co. could cost $23 billion by the end of next year, a legislative source told The Associated Press. The source spoke on condition of anonymity.

That’s far more than lawmakers and Gov. Gray Davis estimated when they approved legislation authorizing the state’s power purchases.

At the time, they projected they would need $10 billion in revenue bonds to buy power for the two utilities over a decade. The bonds will be repaid by the utilities’ customers over several years.

Gov. Gray Davis has said repeatedly he is confident the state’s power crisis can be resolved without further rate hikes.

But Davis’ representatives, including cabinet secretary Susan Kennedy, Finance Director Tim Gage and Deputy Chief of Staff John Stevens, warned lawmakers that customers’ rates would have to be raised at least 50 percent to cover the new projections, the source said.

That increase would come on top of the 9 to 15 percent increase the Public Utilities Commission approved in January – and an additional 10 percent increase already scheduled for next year.

Davis spokesman Steve Maviglio confirmed that Kennedy spoke with Assembly Speaker Robert Hertzberg, D-Van Nuys, and other top Assembly Democrats on Friday.

“She talked about a number of different scenarios that are possible” depending on other legislation and rescue plans concerning the utilities, Maviglio said, declining to elaborate.

The source said the calculations were by the administration, not the PUC, which would have to implement any rate increases.

Lawmakers weren’t told over what time frame such an increase would need to be implemented, the source said.

The PUC has yet to weigh in, but is expected on Tuesday to address how customer rates will be divided between the state and the utilities.

Consumer advocate Harvey Rosenfield promised a ratepayer rebellion at the ballot box in 2002 if rates were increased further, saying he would sponsor an initiative to impose a windfall profit tax on electricity wholesalers to capture their profits. That proposal would share the ballot with Davis, who will be up for re-election then.

“If this goes through, this is the beginning of the ratepayers’ revolt,” said Rosenfield of the Foundation for Taxpayer and Consumer Rights.

Edison and PG&E have both pushed for further rate increases, and PG&E has said its current rates would be insufficient to cover its bills and the state’s.

Administration officials have been negotiating with PG&E, Edison and San Diego Gas & Electric about purchasing the utilities’ transmission lines to give the companies cash to pay their bills.

PG&E and Edison say they’ve lost more than $13 billion since summer due to high wholesale electricity costs that California’s 1996 deregulation law prevents them from collecting from their customers.

PG&E‘s and Edison‘s credit was cut off by electricity wholesalers in January. The state has been spending $40 million to $50 million a day since then to keep the lights on for their customers, authorizing use of $4.2 billion in taxpayer money so far for those purchases. That money will be repaid after the revenue bonds are issued in May.

State Controller Kathleen Connell warned this week that the state’s power-buying is gutting California’s budget surplus and putting the state at financial risk. Wall Street has also been wary. The Standard & Poor’s credit-rating agency put the state on a credit watch “with negative implications” as soon the power purchases began.

California has faced an energy crunch for months, fueled by high natural gas prices, soaring wholesale electricity costs and a tight power supply due in part to California plant maintenance and scarce hydroelectric power in the Pacific Northwest.

The Assembly on Friday opened hearings into the skyrocketing natural gas costs that will include an investigation into whether market manipulation helped drive up prices.

Pacific Gas and Electric Co. customer Gladys Cook of Sacramento told the committee her natural gas bill rose from about $47 or $57 a month last year at this time to $344 in February and $112 this month.

“It was just a terrific shock, especially after the Christmas holiday and everything,” said Cook, who lives with her 87-year-old mother, a retired teacher. Cook said they turned down the heat and water heater to try to reduce their bills.

Natural gas that sells for $5.25 elsewhere sells for nearly $30 at the California border, said Assemblyman Darrell Steinberg, chairman of the Assembly Energy Oversight Subcommittee.

“We’re going to examine every possible reason for the price spike,” he said.

The cities of Los Angeles and Long Beach each filed lawsuits this week accusing several gas companies of conspiring to drive up prices by limiting supply.

And Sweetie’s, a San Francisco bar, filed a class-action lawsuit Friday accusing several natural gas companies of manipulating California’s natural gas market to unfairly drive up prices.

The lawsuits say Southern California Gas Co., San Diego Gas and Electric, El Paso Natural Gas Co., Sempra Energy, El Paso Corp. and affiliated companies decided in a Phoenix hotel room in 1996 to block construction of gas pipelines that could have helped the state avoid its power crisis.

Rick Morrow, vice president of customer service for Southern California Gas Co., denied executives at the Phoenix meeting with El Paso Gas representatives were conspiring to drive up gas prices.

“There was no mystery to the meeting,” he said. “What is being alleged is absolutely false.”

Morrow said his company’s customers are seeing far less of an increase in gas prices because SoCal Gas has long-term shipping contracts.

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases