The San Diego Union-Tribune

SACRAMENTO — Gov. Gray Davis dropped his opposition to an electricity rate hike yesterday and proposed an increase — exempting San Diego County residences that use relatively little power and upping the monthly bill for others by an average of 27 percent.

The rate increase is smaller than the hike for Pacific Gas and Electric Co. and Southern California Edison Co. that the state Public Utilities Commission approved last week. The governor’s aides said the administration has better data about state spending on power.

“Now, as you know, I have fought tooth and nail against raising rates,” Davis said in a five-minute, statewide televised address, the first by a California governor since 1992, when the state was in a deep economic recession.

“It’s become increasingly clear, however, that with rising natural-gas prices, the feds’ failure to control costs and the state’s lack of supply, that some increases are needed to keep our lights on and our economy strong,” Davis said.

The governor said he is urging the PUC, which is controlled by his appointees, to adopt his plan. He said it will “protect average consumers, reward those who conserve and motivate the biggest users to cut back.”

Davis, concluding that “this mess is man-made,” laid the blame on a flawed state deregulation plan enacted in 1996 and said he shares the public’s concern that “the generators are ripping us off.”

“We are moving to establish a public power authority to build more power,” he said. “If the private sector fails to build all the power plants California needs, we’ll build them ourselves.”

Later in the evening, Davis flew to San Diego, where he addressed a conference of the U.S. Council on Competitiveness at the Birch Aquarium in La Jolla. There he hailed the creation of three new centers of science and innovation on University of California campuses and reiterated his appeal for energy conservation.

“Hopefully, with record conservation, distributed generation — bringing major power plants online — and everyone at least conserving 10 percent, we’ll get through this summer without major disruptions,” Davis said.

The governor’s televised speech didn’t play well with consumer groups. A spokesman for a group that is threatening to put an electricity initiative on the ballot next year said Davis is bailing out the utilities.

“Governor Davis broke his promise to Californians,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica. “All along he has been telling us that we wouldn’t have to bear the burden of deregulation.”

The state began buying power for utility customers in mid-January and has spent about $4 billion so far. The two largest utilities, Edison and PG&E, could no longer buy power after they ran up a combined debt of $13 billion. Their rates were frozen under deregulation, and wholesale power costs soared.

The PUC adopted a general rate increase for PG&E and Edison, but the details have not been worked out, and the commission could easily adopt the governor’s plan.

Davis proposed a detailed rate increase for all three investor-owned utilities, the third of which is San Diego Gas & Electric Co. Legislation exempts residences that use 130 percent or less of the “baseline,” a minimum amount for a household that varies with climate zones.

In the SDG&E service area, the governor’s plan estimates:

[] Low-to-medium users, the 49 percent of residences that use up to 130 percent of the baseline, would have no increase in monthly bills that average $26.

[] Medium users, the 23 percent of households that consume between 130 percent and 200 percent of the baseline, would see their average monthly bill increase 9 percent, going to $59 from $54.

[] Heavy users, the 28 percent of households that use more than 200 percent of the baseline, would have a 33 percent increase in their average monthly bill, up to $150 from $113.

[] Those businesses that are on a flat rate would have an average increase of 22 percent, or 2.86 cents per kilowatt-hour.

The PUC plan is an overall increase averaging 3 cents per kilowatt-hour for all PG&E and Edison users. Utilities complained that the PUC plan did not give them enough money and would increase their debt.

A Davis energy adviser, Joseph Fichera of Saber Partners, said the governor’s proposal would produce $3.5 billion in additional revenue for the rest of this year, compared with $4 billion under the PUC plan.

Fichera said the PUC overestimated what the state will spend for power and did not include the assumption in Davis’ plan of a 10 percent reduction because of conservation measures.

“We had the actual Department of Water Resources data,” said Fichera, referring to the state agency that buys power. “We have modeled that. We have better knowledge of what the power costs are going to be.”

Davis has declined to release the DWR data, although several newspapers, including the Union-Tribune, and Republican legislators have filed suit to see those figures.

Fichera said that if the governor’s proposal is adopted by the PUC, no further rate increases should be needed through 2003.

Davis said his plan, unlike the PUC proposal, includes funds to “restore the utilities to financial stability” if they agree to three things: low-cost power from their remaining power plants for 10 years, the sale of their transmission systems to the state and the dropping of lawsuits seeking rate hikes.

Under the governor’s plan, part of the revenue from the monthly bills paid by ratepayers would become a “dedicated rate component” that could be used to finance $8 billion of the utilities’ debt.

PG&E issued a statement applauding Davis’ proposals for energy conservation but noted that the power crisis has been going on for nearly a year with little relief in sight.

“Unfortunately, the steps the governor announced tonight still do not appear to offer a comprehensive solution to resolve California’s energy crisis,” the company said.

A spokesman for small nonutility generators, who are not operating because they have not been paid, criticized Davis for talking about building new power plants while not making a proposal to get the small generators back online.

“We kind of feel like an elephant at a cocktail party, and we are being completely ignored,” said Jack Raudy, a spokesman for the small generators.

Assembly Republican leader Dave Cox of Fair Oaks also criticized the governor for failing to outline a specific program to get more power plants online by this summer, when some are predicting rolling blackouts.

“I think he perceived that he is in trouble and believed he needed to say something to try to soften the proposed rate increase,” Cox said.