PUC to hear companies’ plans to pass costs onto customers
SACRAMENTO — The California Public Utilities Commission on Tuesday opened a door that could allow utilities to double the price their customers pay for electricity despite a state-imposed rate freeze.
The commission agreed to hold hearings on a proposal by Pacific Gas and Electric Co. and Southern California Edison to bill customers for the amount they’ve paid for wholesale power in excess of the retail rate they’re allowed to charge under the state’s 1996 deregulation law.
The overages had reached $4 billion by the end of August and are still climbing.
“The utilities are regulated entities, and we set up accounting procedures that may or may not work in today’s energy environment,” Utilities Commission Chairwoman Loretta Lynch said. “It’s up to the regulators to monitor the environment to change rules consistent with changes in circumstances.”
Consumer advocates, however, said the commission is caving in to pressure to make the investor-owned utilities look good on Wall Street. PG&E and Edison soon will file earnings reports and might otherwise have to write off the overages as losses.
“What the PUC is doing is laying the groundwork for raising rates substantially,” said Nettie Hoge, executive director of The Utilities Reform Network. “They’ve caved to the sensation that there’s a financial crisis out there because it has to be done before third-quarter earnings reports come out on Friday.”
The commission hasn’t decided whether to grant the utilities’ request — only to hear the case, starting with a preliminary hearing next Wednesday in San Francisco. Details on the timing and size of any future rate hike will not be known until the case is settled.
But the commissioners’ decision to consider the matter at least indicates their willingness to reverse previous policy. The commission last year refused a similar request to collect excess costs incurred during the rate freeze, and the utilities were unable to persuade the trial court or the First Court of Appeal to rescind that decision.
The deregulation law, which took effect in 1998, allows PG&E and Edison to charge customers 5.4 cents per kilowatt-hour of electricity. At the time, electricity typically cost about 3 cents per kilowatt-hour on the open market.
The utilities were to use their markup to pay investors back for “stranded assets,” such as power lines and meters in rural areas they were forced to invest in when the state regulated the large monopolies.
The utilities would be free to set their own rates as soon as they sold off all of their stranded assets, or on March 31, 2002, whichever came first.
This past summer, the price of power began to skyrocket, averaging 11 to 18 cents per kilowatt hour.
If PG&E were to pass the true cost along to customers, the typical monthly residential bill of $52 would go up to $104, company spokesman Jon Tremayne said. And that does not include the cost of debt that PG&E says its customers owe for past overages.
On Thursday, wholesale power was selling for 9 cents to 13 cents per kilowatt-hour, or double what the utilities charge their customers.
Tremayne said PG&E wants to recover its costs in conjunction with a state plan to bring down wholesale power costs and reduce the impact on customers.
Gov. Gray Davis has dedicated the month of October to study the state’s power crisis and will announce a plan to cope with the problem next month, spokesman Steve Maviglio said.
In the meantime, an emergency petition filed Oct. 4 by PG&E warned that the overages threatened the utility’s ability to borrow money, at least at reasonable rates. The company said major credit-rating agencies have already downgraded the utility’s outlook from stable or positive to negative. Last week, the commission allowed PG&E to sell $1.4 billion in bonds to cover the excess power costs.
“The financial implications of these enormous undercollections are staggering,” PG&E lawyers said in the petition.
Utility advocates say PG&E lobbied the Legislature heavily to pass a deregulation law that suited its needs at the time, and now that the situation has changed it is trying to use its clout to change the rules again.
Consumer advocates say any “losses” should be balanced against the profits that PG&E and Edison earned in 1998 and 1999 when power costs were far lower than the amount the utilities were charging customers.
During a news conference today, The Utility Reform Network will release a report alleging that PG&E and Edison earned a combined $18 billion from their retail markup before this summer’s price spikes evaporated the profits.
“It is supremely arrogant of the utilities to ask the PUC to go around the law, or to ignore the law in the name of protecting their stock prices,” said Doug Heller, spokesman for the Foundation of Taxpayer and Consumer Rights. “It’s just another version of this revisionist mentality that ‘We will establish rules through our political power that give us the best return, and when that goes south we’ll just try to change the rules.’ ”
Lynch said she’s inclined to agree that the overages should be balanced against past earnings but added that she isn’t willing to commit to any specific plan until the commission completes its hearings on the matter.
The utilities’ cost-recovery plan was not the only major development to emerge Tuesday in California’s rapidly unfolding power crisis.
During a meeting in Los Angeles on Thursday, the Public Utilities Commission will consider a proposal to lock in business customers who had agreed to possible service interruptions during periods of peak demand in exchange for reduced rates.
PG&E can save 500 megawatts to keep its grid from collapsing by cutting power to 215 “interruptible” customers, company spokesman Tremayne said.
Normally those customers would be allowed to opt out of the interruptible service plan during the month of November, but the PUC may revise its rules to remove that opportunity. The utilities fear that businesses will make a mass exodus from the plan because experts predict a severe supply shortage next summer.