Electricity rates today may not be grounded

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Davis adviser says recent hikes will cover 20-year pacts. But detractors say read the fine print.

The Orange County Register

SACRAMENTO The price tag for California’s electricity crisis will show up in customers’ bills for at least the next two decades.

But will utility ratepayers — already hit with increases totaling up to 46 percent since January — face still more hikes?

No, the Davis administration said Friday as, under court order, it released the 38 long-term contracts it has made with energy suppliers.

The $42.8 billion worth of power the state has committed to buying over the next 20 years can be covered by the rates that nearly 11 million homes and businesses pay now, Gov. Gray Davis‘ top energy adviser said.

Our calculations are that the existing rate structure will cover it,” said S. David Freeman, who Davis hired away from the Los Angeles Department of Water and Power to help manage the state crisis.

But other experts contacted on Friday were not so sure.

They noted that the 600-plus pages of contracts didn’t include critical information about the power plants’ operations, including how much it will cost them to generate electricity.

Half of the contracts have a floating price: They allow the generators to charge the state for electricity based on the plants’ costs to buy natural gas at the time. The cost of gas represents about 80 percent of the cost of electricity because most plants use gas.

The $42.8 billion figure is based on what natural gas costs now. If gas prices rise, so do contract costs, and that could affect rates. And as Freeman said Friday: Make no mistake: A hundred percent of this power is going to be paid by the consumers.”

Furthermore, buried in the fine print are provisions dealing with air emission costs, which the state has agreed to partially absorb, and costs that the companies will be allowed to pass on such as unexpected fees and taxes.

Distressing to some was that the court allowed the state to black out some information in the contracts, agreeing with the companies that it was financially sensitive. It was not clear if that information would be released.

The most important terms of the contracts have been redacted, still leaving us in the dark,” said San Diego consumer advocate Michael Shames. Ultimately, the real question is the extent to which risks for natural-gas prices, emission credit prices and superpeak’ prices will be covered by the generators or the state. We won’t know that until the full language of the contracts is released,” he said.

Southern California Edison experts said it would take them several days before they could assess whether they think additional rate hikes will be necessary.

Apart from the long-term contracts, the state is preparing a $12.5 billion bond issue in September, is negotiating the acquisition of key assets of Southern California Edison, and is pondering how much, if any, of the utilities’ back debts to cover. Also looming are increases in the cost of energy during the hottest summer weather.

All of these issues can affect rates. The success of the September bond sale, in particular, could affect rates, said the Public Utilities Commission, which by law decides utilities’ rates.

When the PUC approved a recent rate increase, the commission said very clearly that a lot of what we did rested on the success of the bonds,” said PUC spokeswoman Kyle DeVine. Will there be future rate hikes? We’re not saying one way or another that we’re certain,” she said.

But representatives of two major consumer groups are certain.

I say you’re looking at 100 percent before the end of the year,” said Harry Snyder, executive director of Consumers Union of Northern California.

Doug Heller of the Foundation for Taxpayer and Consumer Rights agreed.

The state says it can do this within the existing rate structure,’ but that’s after the single largest utility rate increase in California history. At the beginning of the year, he (Davis) said we were going to solve this problem within the existing rate structure. Over the course of the last few months, he’s increased the existing rate structure. It’s disingenuous. We increased rates to accommodate high-price contracts.”

Earlier in the year, Davis said, If I wanted to raise rates, I could have solved this in 20 minutes.”

Consumer Watchdog
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