Few share Davis’ view on rate hike

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Even aides predict big power cost boost

Sacramento Bee

With new threats of fiscal distress descending on California’s power industry and the state treasury, Gov. Gray Davis finds himself increasingly alone in his belief that the state can weather the energy crisis without significant electricity rate increases.

Top lawmakers and other key officials involved in sorting through the crisis – including some of Davis’ own staffers – now believe rates need to rise, perhaps to double. And they said the Public Utilities Commission is likely to signal that some rate increase is needed when it meets this week.

“I think the facts finally came out in terms of the magnitude of the problem,” said Senate President Pro Tem John Burton, D-San Francisco. “You have to get the money from somewhere – unless you steal it or win a lottery ticket … I don’t know how you solve this problem without (a rate increase) and I never really saw how you could solve it without one.”

The assumptions the Democratic governor has relied on to bolster his “hope and expectation” that rates won’t rise beyond the already anticipated 19 percent increase are rapidly falling apart.

As the crisis drags on, the state will have to spend far more than anyone expected in January for short-term power purchases, long-term contracts and the utilities’ transmission lines.

Davis had also hoped the state could strike a deal to rein in the costs the utilities pay alternative energy suppliers, but by week’s end suppliers were balking and previous legislative agreements began to disintegrate.

On March 7, state Treasurer Phil Angelides had recommended the state initially sell $10 billion in bonds to help the state purchase power, saying a significantly larger-scale bond issue would increase costs for ratepayers. The Senate on Thursday approved a bill it thought would make that possible. But by Friday, neither Republican lawmakers nor the Davis administration was on board.

Key lawmakers were told by high-level Davis staffers that the state may need to borrow as much as $23 billion – and raise rates by as much as 60 percent to 80 percent above the initial 19 percent to support it – over the next 18 to 24 months.

Davis, meanwhile, was in the Palm Springs area for most of the day Friday. As negotiations continued in the stalemated Assembly, Davis attended a campaign fund-raising luncheon at a top desert golf resort. His spokesman, Steve Maviglio, said the governor did not play golf, but attended the event between a morning groundbreaking ceremony and a mid-afternoon television interview.

“It’s insane and disgusting at this point,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights. “Governor Davis is unfortunately tending to his campaign coffers more effectively than he is tending to the state’s energy needs. He is double-bogeying his round as governor.”

One administration source said some Davis advisers have been calling for a rate increase for weeks. Maviglio said Saturday that the governor has not been briefed on the most current financial models with which his negotiators and legislators are working.

“The governor has not signed off (on a rate increase),” Maviglio said. “What the staff says doesn’t matter. … There’s absolutely no change with what he’s said all along.”

But others said it is time the governor confronted the reality of a rate increase.

On Friday – after his briefing with the administration – Assembly Speaker Robert Hertzberg, D-Sherman Oaks, said, “it seems more inevitable that the Public Utilities Commission will have to raise rates.”

Assemblyman Fred Keeley, D-Boulder Creek, for months a key player in the energy talks, concluded a month ago that state policy-makers have little ability to influence the price and availability of power in the short term.

“Even if the governor and the Legislature acted in perfect harmony, the ability of state government to effectuate an outcome is very, very limited,” Keeley said. “My guess is the force of events – the enormity of the economics involved in this – are playing out and that the administration is coming to the same conclusion.”

Angelides said the numbers suggest the state can’t survive financially under the current rate structure.

“There’s a limit to how much you want to sell bonds to keep delaying reality,” he said. “At the end of the day the PUC is going to have to set rates that allow the state to buy power and the state and utilities to recover their costs. It is certainly worth borrowing money to repay the general fund, but then you have to ask: ‘How many billions are we willing to borrow to delay the tough reality of where we are?’ ”

Heller, whose group vigorously opposes any rate increase, said he believes Davis is politically averse to boosting voters’ energy bills – but at the same time doesn’t want to take the steps necessary to crack down hard on energy generators, such as seizing power plants or imposing a windfall profits tax.

That leaves the Legislature little choice, he said, but to embrace a rate increase as necessary.

“It’s political suicide, but they have to be considering throwing this right on (power) bills, and using blackouts as a mechanism to scare us into accepting these rate increases,” he said. “The Legislature appears to be the fall guy for the governor’s weakness.”

Keeley said Davis could help the situation – and perhaps be viewed as courageous – if he publicly embraced a rate increase soon.

“It would end the fantasy that this situation could be stabilized without a rate increase,” Keeley said. “That fiction – and the effort to maintain that fiction – gets in the way of genuine problem solving.”

Consumer Watchdog
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