San Jose Mercury News

SAN JOSE, Calif._As utility executives pleaded for an electricity rate increase of up to 30 percent, angry consumer advocates denounced the state’s deregulated energy system Wednesday and insisted that the public shouldn’t bear the cost of its failures.

“Deregulation has been an unmitigated disaster,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica, summing up the opinions of many of those who addressed the California Public Utilities Commission. He added that if the commission increases rates, which it may do as soon as Jan. 4, “There will be hell to pay.”

Ever since the commission announced last week that it intended to raise rates to rescue PG&E and Southern California Edison from bankruptcy, many people in the Bay Area and throughout California have reacted with outrage.

“They are not happy,” said Rosalina White, an assistant public adviser with the agency, who said the agency has been flooded in the past few days with hundreds of calls critical of the rate increase idea.

Similar feelings were expressed by more than a dozen speakers during Wednesday’s hearing, which will be followed by another today. Many of them said they were especially worried about the effect of any increase on the poor, particularly those who are elderly.

“Seniors more than most need affordable utility costs,” said Bill Powers, an official with the Congress for California Seniors. “They need the heat, they need the cooling. They don’t have a choice if they’re going to live healthy lives.”

Former commission president P. Gregory Conlon, who helped forge the deregulation law, insisted that the free market should be given a chance to work. Once new power plants are built over the next couple of years, he said, the laws of supply and demand should push electricity costs down.

“Trust the system,” he told the commission and those in attendance. “Don’t throw out the baby with the bathwater.”

But Marc Joseph, of the Coalition of California Utility Employees, replied that competition is plainly not working. He blamed that failure on electricity suppliers, whom he accused of gouging the utilities by charging outrageous wholesale prices.

“It’s not supply and demand, it’s extortion,” Joseph said. Unfortunately, he added, “Faith in the markets is a powerful seducer.”

Despite frequent assertions by power suppliers that they have done nothing wrong, officials with Pacific Gas & Electric Co. and Southern California Edison aren’t happy with the prices the companies are charging, either.

Under deregulation, both utility firms have been encouraged to sell off many of their power plants, forcing them to buy much of their electricity from others. While deregulation was to supposed to result in lower electricity rates, wholesale prices have skyrocketed this year.

Utility company officials say they need the commission to raise rates immediately because otherwise they face the real possibility of becoming insolvent.

“The financial survival of PG&E _ and possibly the financial survival of California _ hangs in the balance,” said Roger Peters, PG&E‘s general counsel.

PG&E and Southern California Edison claim they have sunk more than $8 billion in debt this year because the amount they are paying for wholesale electricity far exceeds what they can charge their customers, whose bills are shielded by a state-mandated rate freeze.

PG&E officials filed papers with the commission Wednesday declaring that it “will run out of cash by late January or early February,” unless the agency acts to bolster its finances. And Southern California Edison disclosed to the U.S. Securities and Exchange Commission Tuesday that it has had difficulty obtaining a $1 billion line of credit that it sought to help finance recent energy purchases.

The companies not only want the rate freeze lifted immediately, but have asked the commission to make their customers pay that $8 billion tab. Under various plans proposed by the utility firms, consumer rates would immediately rise by 20 to 30 percent, with additional raises possible over the next few years.

Many of those who attended the hearing were skeptical of the company’s claims of financial hardship. They not only urged the commission to keep rates frozen, but offered a number of opinions on how to deal with the problem.

Some suggested lifting the rate freeze but having the utilities and their stockholders remain financially liable for the $8 billion.

A number of people favored having the state take over the utility companies remaining power plants, particularly PG&E‘s vast system of hydroelectric dams. Then the state could set the price of the power generated from those facilities just high enough to cover their operating costs.

Others said the public should give no financial assistance to PG&E and Southern California Edison, saying those companies should be allowed to go bankrupt.

While the commission wrestled with the issue here, Gov. Gray Davis continued a series of energy discussions with federal officials in Washington. He met briefly with President Clinton Wednesday, a day after sitting down with Federal Reserve Chairman Alan Greenspan and Treasury Secretary Lawrence Summers to seek their advice on dealing with the power crunch. Davis has previously conferred by phone with President-elect George W. Bush.

“I don’t want some experiment called deregulation of electricity to drag our economy down,” Davis said in an television interview. But he added that “consumers will have to pay some of the cost, not all of the cost, of this failed experiment.”

At the governor’s request, U.S. Energy Secretary Bill Richardson issued his second extension of an order requiring out-of-state power suppliers to sell electricity to California. Richardson said the new extension, effective through Jan. 4, was necessary because some suppliers have been reluctant to sell power in light of uncertainty about the financial condition of California utilities.

In a related development, Southern California Edison said it filed an emergency petition asking a U.S. Court of Appeals to force the Federal Energy Regulatory Commission to limit how much profit wholesale electricity suppliers can earn in California. PG&E said it plans to join that effort.

Utility executives and state officials have complained that the federal agency didn’t go far enough on Dec. 15, when it established a “soft” price cap of $150, which still allowed wholesalers to charge higher rates under certain circumstances.