No Relief on Rates as Power Costs Fall

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California: Increases remain in place despite a sharp drop in market prices. State panel predicts a $2.7-billion windfall for the utilities.

The Los Angeles Times

Despite assurances from the state 15 months ago that electricity customers could expect lower bills when power prices fell, relief is still many months away, even though blackouts have ended and wholesale prices have dropped.

The hangover from California’s electricity crisis of 2000 and 2001 means that consumers will not get the benefit of relatively cheap power until at least next year, officials say.

Wholesale power now costs one-tenth what it did when the state Public Utilities Commission approved an average 30% rate hike in March 2001.

And regulators say Southern California Edison and Pacific Gas & Electric Co. are collecting hundreds of millions a month more than they are paying for electricity. The PUC projects that the two utilities will collect a total of $2.7 billion extra this year.

But the agency thus far has rebuffed calls for rate reductions and rebates.

Commissioners want the extra billions used to keep California’s two biggest utilities afloat and to help pay $7 billion in debts from the state’s voyage into the stormy deregulated electricity market.

“The higher rates have become a slush fund that the PUC wants to use,” said attorney Matt Freedman of the Utility Reform Network.

Meanwhile, some customers have been forced to make tough choices.

“We’ve had a lot of discussions within the company about whether we can really afford to stay in California,” said Lori Johnson, spokeswoman for Cargill Inc., a Bay Area salt refiner. “Our peak summer rates were 16.5 cents [per kilowatt-hour]. We have a sister salt plant in Utah, where rates are 2.9 cents.”

Under the PUC‘s tiered rate structure, customers feel varying degrees of pain. The monthly bill for a homeowner in Edison territory who uses a relatively miserly 500 kilowatt-hours per month, for example, has risen slightly in the last year, from $64 to $67. But the homeowner who uses an average of 750 kilowatt-hours a month pays $116, up from $98.

Others, particularly owners of large homes and businesses, have seen rates climb more steeply.

James Crettol says he is selling some of his 2,600 acres of farmland in Kern County, partly because of electricity costs. And he has joined two dozen other PG&E customers in seeking relief through a complaint filed with the PUC.

“The cost was astronomical,” said Crettol, president of the Agricultural Electrical Consumers Assn. “In 2000, our annual bill was around $350,000. The following year we ended up with a bill about $460,000.”

Facing Higher Bills

Mary Ann Woomers, owner of the Scone Works of San Francisco, uses far less electricity. But she also joined in the complaint against the PUC, which coincidentally employs some of her customers.

“I get so angry,” said Woomers, who turned off a freezer and got rid of two refrigerators to hold her bill steady at about $200 a month. “The bill is the same, even though I’m using half of the electricity.”

While Californians struggle with higher bills, the PUC is being challenged by consumer groups, contending that it has violated its own stated intentions for the rate-hike money.

At its meeting March 27, 2001, with protesters jeering, the PUC unanimously voted to raise rates by 3 cents a kilowatt-hour and to make permanent an earlier hike of a penny per kilowatt-hour. The commission said the increase would be used only to cover the future costs of electricity purchased by the state for PG&E and Edison customers.

“The rate increase is for power purchases on a going-forward basis only,” PUC President Loretta M. Lynch said at the time. The PUC also said that, if the rate hike raised more money than needed, customers could get relief. “In the future, we can refund revenues that exceed costs,” the PUC decision said.

The commission also stressed the importance of saving the state’s energy system from collapse, and it now wants to use the billions of dollars to resolve PG&E and Edison litigation that stems from losses the utilities incurred before the rate increases.

Under the PUC‘s plan to extricate PG&E from bankruptcy, $4.7 billion of customer money would be used to help pay off the San Francisco-based utility’s thousands of creditors. That includes $1.1 billion amassed in the last year.

In settling a lawsuit by Edison, the PUC allowed the utility to use more than $3 billion in ratepayer money to pay its debts.

“There is no other place” to get money, said Edison Vice President Robert G. Foster. Edison suspended dividend payments to shareholders as part of the PUC agreement.

Commissioner Jeff Brown said that getting the utilities out of debt would benefit consumers by ensuring reliable service and would help get the state out of the business of buying power.

The Department of Water Resources has been buying electricity for PG&E and Edison customers since Jan. 17, 2001. The rate increase was intended to help repay the state.

“The faster we get the utilities healthy and remove California from the [power procurement] process, the better off we will be,” Brown said.

Ratepayers Take Action

Critics counter that the PUC is perverting its intended use of the money and shirking its duty. “If they found that these creditor costs were reasonable, they could put them in rates,” said Bill Ahern, senior policy analyst with the Consumers Union.

“Instead they are using federal courts [as an excuse] to use the slush fund and pay creditors.”

Ahern and 23 other ratepayers, ranging from homeowners and small-business owners to labor leaders and a state lawmaker, filed a PUC complaint in January, seeking refunds and a reduction in PG&E rates.

“Recent developments in the wholesale electricity market have largely mitigated, if not eliminated, the need for the surcharges,” the complaint said.

Brown acknowledged that the commission in 2001 planned to refund to consumers extra money that was collected–and still does hope to reduce rates.

“The idea was that, as soon as it was feasible, as soon as the utilities were back in shape … that there would be a diminution of rates,” he said. “We have to come up with a legal rationale that allows us to apply the money for past procurement costs.”

The PUC has yet to act on the 6-month-old consumer petition and recently passed up two opportunities to reduce consumer rates to bring them closer to the low market prices for power.

The statutory end to the rate freeze under the state’s deregulation law came and went April 1 with no rate modifications. So did a 3% rate cut scheduled for June 1.

Paul Clanon, chief of the PUC energy division, said he anticipates that the agency this summer or later will approve the 3% cut. He also predicted that PG&E customers would see more relief in early 2003 and that Edison customers would see rollbacks later that year.

That rate relief hinges on whether the PUC‘s Edison plan survives a court appeal and whether the agency’s plan for PG&E is adopted by a bankruptcy judge and the utility emerges from bankruptcy.

The Utility Reform Network argues in its case before the U.S. 9th Circuit Court of Appeals that the PUC illegally circumvented state law and agreed to pay the utility’s debts without proper public review.

The money at stake belongs to ratepayers, the group said, and should be returned.

Commissioner Carl W. Wood said that, in making a deal with Edison, the PUC was trying to find a practical way to keep the state’s second-biggest electrical utility in business. “We could have driven Edison into bankruptcy if we had chosen to do so,” he said. “It would not be a good outcome for consumers ” and the state budget.

“We can’t move toward lower rates without utilities that are effectively capable of procuring electricity,” Wood said.

The PUC faces another legal attack from the Santa Monica-based Foundation for Taxpayer and Consumer Rights, which has asked the state Supreme Court to declare that regulators acted illegally by secretly putting together the PG&E and Edison plans.

Last week the court asked for an informal response from the PUC, which has contended that it is allowed to discuss and vote on litigation in executive session. The commission plans to hold public hearings on its PG&E plan.

There is uncertainty about whether current low energy costs will hold–and whether federal regulators will extend price caps that expire this fall. The state is counting on continuing conservation to help keep the lights on this summer.

“In my view, this is not the time to roll back rates,” said a former PUC member, Richard Bilas. “We want as much conservation as we can [get], and that means the higher the rates, the better.”

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