THE PRESS-ENTERPRISE (RIVERSIDE, CA.)
Southern California Edison pleaded for a 30 percent rate hike Wednesday, warning of rotating blackouts and possible bankruptcy if it doesn’t receive a quick infusion of cash.
Last month, the Rosemead-based utility asked the California Public Utilities Commission for rate hikes of only about 10 percent as wholesale prices for electricity rocketed past what the utility was legally allowed to collect from customers. Edison executives said Wednesday that a continuing shortage of electricity has driven wholesale prices so high that they had to triple their proposed increase, boosting average $ 55 electric bills to $ 71.50 per month.
“In order to keep the lights on, we need more cash,” Edison lawyer Henry Weissmann told PUC officials as hastily scheduled hearings began on requests by Edison and San Francisco-based Pacific Gas & Electric to lift a rate freeze that has stabilized electricity bills for 10 million homes and businesses for the last three years. The hearings continue today.
In the Inland Empire, Edison serves all areas except Riverside, Colton and Banning, which have public utilities. The investor-owned utilities had initially benefited from the freeze, which provided them enough money to maintain profits while paying off old debts. But that picture changed as the price of wholesale power soared with power plants shut down for maintenance and dwindling imports from the Northwest due to a cold snap and reduced hydroelectric power. Saddled with high costs they cannot pass on to customers, utility officials face mounting debt that threatens their companies’ solvency. Credit rating firms have threatened to lower Edison and PG&E institutional debt rating to the same level as junk bonds.
With Edison and PG&E claiming to be nearly insolvent and with rolling blackouts possible in California, state and federal officials have searched feverishly for solutions. On Wednesday, Gov. Davis met with President Clinton to discuss the state’s power crisis, and U.S. Energy Secretary Bill Richardson extended for another week his order that power generators continue to sell into the California market. Meanwhile, Edison asked a federal appeals court in Washington to force the Federal Energy Regulatory Commission to intervene to stabilize and lower wholesale prices by requiring sellers to set prices according to cost, not market demand. And the PUC, seeking to audit the books of Edison and PG&E to see if their rate requests are justified, sought to hire two different accounting firms, according to The Wall Street Journal.
The major accounting firms have done so much past work for California’s two big electric utilities that a single firm could not do the job without having a conflict of interest. Even with two firms, consumer groups questioned whether the auditors could do more than a cursory examination before the commission’s scheduled vote on the proposed rate hikes next Thursday.
By Monday, Edison expects to have paid $ 4.8 billion more for wholesale power this year than it could collect from customers, according to Stephen Pickett, Edison‘s vice president and general counsel.
For PG&E, the figure should be $ 7 billion, spokeswoman Staci Homrig said.
Edison would have to raise rates by 82 percent, not 30 percent, to recoup all its bulk-power costs, said Weissman, the utility’s lawyer.
But representatives of retail and manufacturing trade groups opposed granting such retroactive rate hikes. Consumer groups said lower wholesale electric costs during the first two years of California’s deregulation experiment allowed Edison and PG&E to collect $ 10 billion toward defraying the cost of unprofitable old investments.
That money and the utilities’ income from selling power at inflated market rates from their remaining power plants should be the focus, not the threats of blackouts and bankruptcy, said Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights, based in Santa Monica. “It’s an economic extortion,” he said, urging that the two utilities be forced to lay off more employees and cut other costs before being granted rate hikes.
But PG&E and Edison executives said the picture is already dire. “We are out of credit and we are close to being out of cash,” said Roger Peters, PG&E‘s general counsel. “Unfortunately, we’re the cheese in the middle of a cheese sandwich right now. We’re . . . asking the consumers to join us in the sandwich.” Pickett, the Edison executive, said his company would be near collapse if the commission grants only the 10-percent rate hike that it originally requested–an amount Gov. Davis is said to support.
“It will be only a matter of time before available cash would be exhausted,” he said. “The choices at that time are limited and very unpleasant. The first thing we’d have to do, because we won’t be able to buy power to serve our customers, is to ration the available supply. . . . It would mean controlled, rotating blackouts.”
However, Mike Florio, senior attorney for The Utility Reform Network, a consumer group in San Francisco, told the commission that utility insolvencies elsewhere in the country have not led to power outages. “Never once have the lights gone out,” he said. The commission should reject rate hikes and use the threat of insolvency to force power generators to cut more reasonable deals with Edison and PG&E, Florio said. “If the utilities go under, the generators don’t get paid,” he said.
But a spokesman for large industrial users of electricity warned the public against assuming “a blithe attitude” about utility bankruptcies.
William Booth of the California Large Energy Consumers Association said it’s hard “to imagine how the utility goes into that and comes out on the other side without massive disruption to both utilities and customers large and small, and the state’s economy.”
Booth, whose organization pushed for deregulation in the mid-1990s, said many association members have faced power disruptions already because of interruptible contracts they signed in exchange for lower power rates. He said rates need to go up as much as 20 percent.
A company that purchased some of Edison‘s power plants also supported higher rates.
Reliant Energy Power Generation, which now sells power back to Edison, thinks higher rates would buy some time so that long-term contracting and other remedies recently ordered by federal regulators would have time to work, said Terry Houlihan, a lawyer for Reliant.