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Los Angeles Times

In addition to demanding an immediate 30% increase in electricity rates, Southern California Edison is asking the state Public Utilities Commission for the right to continue raising bills for the next two years, officials said Thursday.

Rates also could decline under Edison‘s proposal. But in a worst-case scenario and taking a variety of complications into account, Edison officials concede, residential rates could soar by 76% over the next two years, with the average single-family residential bill rising from $ 58 to $ 100 a month.

Consumer advocates, who held an unusual summit meeting with utility executives Thursday, said they fear rates could rise even more for consumers who rely on Edison and Pacific Gas & Electric, the state’s two biggest utilities. They worry the rate hike requests are masking an attempt to pass along the full cost of huge wholesale price increases to consumers, which could raise Edison‘s rates by 80% or more.

Officials for the two utilities, which together serve 24 million Californians, vehemently denied any such plan.

The debate emerged on the second day of emergency PUC hearings to consider Edison‘s request for a 30% rate hike and PG&E‘s request for a 26% increase. The giant investor-owned utilities said they will go bankrupt if they are not quickly granted relief from sky-high wholesale electricity costs. The hearings have been extended to today and possibly Tuesday, with the commission scheduled to vote Jan. 4.

Consumer advocate Ralph Nader, fresh from his Green Party presidential campaign, was among those turning out for the hearings, which could prove to be an important milestone in the national deregulation movement. Nader and other consumer advocates maintain that California’s pioneering effort to deregulate private utilities has been an unmitigated disaster for ratepayers, and has led to an energy crisis that has gripped the state for the last six months.

“It is quite clear now that the alternatives before the people of California are either a coerced bailout . . . or bankruptcy by the major utilities in the state,” Nader said in a news conference at PUC headquarters in downtown San Francisco.

Echoing suggestions of some local consumer advocates, he argued that bankruptcy would not disrupt electrical service, and would simply lead to the replacement of top utility executives with the “frugal supervision” of a bankruptcy court.

Nader praised the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District, both of which are publicly owned, for a sterling performance in serving customers and putting “human need over corporate greed.” The municipal utilities were exempt from deregulation and are not seeking rate increases.

Under deregulation, Southern California Edison and PG&E sold most of their power plants and agreed to purchase electricity on the open market, in many cases buying from companies that purchased their old gas-fired generators. The idea was that power would be cheaper if sold in a competitive market.

Instead, wholesale electricity prices have risen dramatically since May, hammering the big utilities and straining their ability to provide power to customers. Edison and PG&E estimate they have spent $ 11 billion more than they have collected from customers since then because of the rate freeze.

Based on that, they have sought two things from the PUC: elimination of a rate freeze enacted with deregulation, and emergency rate increases. Documents made public Thursday provided the first in-depth look at the proposed increases.

U.S. Energy Information Administration figures show the two utilities already charge rates that are higher than the national average, which is 8.6 cents per kilowatt-hour, and far higher than those charged in any state in the West, where rates tend to be lower than the national average.

Under the proposal presented to the PUC, Edison‘s basic residential rate would immediately jump by 33%, from 11.45 cents per kilowatt-hour to 15.27 cents per kilowatt-hour. Right now, the highest rates in the United States are in Hawaii, where utilities charge an average of 14.3 cents per kilowatt-hour.

Under Edison‘s plan, the company would be entitled to raise rates another 5% whenever accumulated losses reach $ 1 billion. If, on the other hand, wholesale prices drop and Edison piles up a surplus of at least $ 400 million, it would be forced to cut rates by 5%. This would continue for two years.

Under the worst-case scenario presented by Edison, taking into account the effects of compounding and the expiration of a 10% rate cut imposed by the state during deregulation, prices could rise 76% to 20.11 cents per kilowatt-hour by January 2003.

PG&E, which serves customers in Northern and Central California, has proposed a different scheme that could see rates rise 40% or more, depending upon market prices, over the next two years.

All of this turns on the PUC‘s interpretation of the rate freeze imposed by the Legislature with deregulation in 1996.

Under the law, utilities were required to freeze rates until March 2002 or whenever they have finished paying off past investments in nuclear power and alternative energy contracts. The utilities successfully argued to the designers of deregulation that customers should be forced to pay off those debts–estimated in 1996 at $ 28 billion–at an accelerated pace to prepare the utilities to compete in a new, deregulated era.

Once the rates are unfrozen, the utilities can ask the PUC for permission to charge consumers rates based on the wholesale market costs of electricity, which now are far higher than residential rates.

The question being hotly debated before the PUC is whether the utilities’ debts have been paid off. The answer could determine whether the utilities are entitled to raise rates at all.

Attorneys for the utilities argued to the commission Thursday that the rate freeze either has already ended or will certainly end by next week. The question of when the freeze ends is tangled in a briar patch of formulas involving the value of the utilities’ nuclear and hydroelectric power plants–a value that changes every week, along with the market price of the electricity they produce.

As the market price of electricity soars, any means of generating electricity in California is extremely valuable–including nuclear power plants and federally mandated contracts with the owners of windmills and steam-driven turbines. Once considered money pits, these sources of power are now so lucrative, the utilities argue, that the rate freeze must be declared over.

Consumer groups disagree, and argue that Edison and PG&E have together collected about $ 18 billion since 1997, thanks in part to the artificially high level at which the Legislature froze rates. They say there is no basis to unfreeze the rates, and say they may sue the PUC over the issue if it raises rates next week.

Harry M. Snyder, a West Coast representative of Consumers Union, argued Thursday that the utilities want the PUC to declare the rate freeze over so that they can charge market rates far higher than the rates they are asking the PUC to set.

Stephen E. Pickett, vice president and general counsel for Southern California Edison, insisted that Snyder’s fears are entirely unfounded. He said Edison has no intention of charging market-rate prices, and couldn’t do so without further approval from the PUC.

“What we want to do, if we’re credit-worthy enough to do it, is to mitigate the impact of the wholesale market on our customers,” he said. But Wall Street is reluctant to lend to the utility in its current financial condition.

“Right now, our credit card is charged to the max,” he said. “The banks aren’t going to give us more money unless they know they’re going to get it back. The only way they will increase our credit limit is if there is assurance from the PUC that we’ll be able to pay back what we’ve borrowed.”

Those were among the arguments being made, not only before the PUC, but at a meeting of the utility executives and consumer advocates. The meeting took place a few blocks from PUC headquarters in the San Francisco field office of Gov. Gray Davis, who participated by telephone.

Lenny Goldberg, a lobbyist with The Utility Reform Network, called the two-hour discussion “a frank exchange of views”–ordinarily, the sort of assessment diplomats make after a particularly unpleasant meeting. “The governor was listening and learning,” he said.

Goldberg said all sides did agree on one thing: They supported a lawsuit filed by Edison against the Federal Energy Regulatory Commission demanding that it cap rates in California’s wholesale electricity market.

Goldberg also said consumer advocates warned the utility executives and Davis that there are myriad consumer issues to deal with if the PUC chooses to lift the rate freeze imposed under deregulation. “We told them it would be disastrous to simply announce the end of the rate freeze,” he said.

One of the consumer advocates, Harvey Rosenfield of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, suggested that the utilities make consumers partners in a bailout by giving them shares of stock. One of the utility representatives, speaking on condition of anonymity, rolled his eyes when asked about Rosenfield’s idea and said he considered it one of many impractical suggestions floated by the consumer groups.

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