PG&E plan to raise rates 16 percent sparks outcry from consumers

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San Jose Mercury News

SAN JOSE, Calif._Beginning Jan. 1, the typical Bay Area resident’s electric bill could rise $9 a month _ a 16.5 percent jump that could be followed by several more over the next few years.

That’s the plan Pacific Gas & Electric Co. filed with state regulators Wednesday, as part of the company’s blueprint for ending the government-imposed cap on electricity rates.

While PG&E officials have talked generally in the past about wanting to end the freeze, which has been in effect for nearly three years, Wednesday’s proposal provides the most detailed glimpse yet of the effect that might have on consumers.

The company urged the Public Utilities Commission to quickly approve the plan, claiming it soon could be “forced into bankruptcy” otherwise. And even though the plan would bill consumers for the $3.4 billion in unanticipated electricity costs that PG&E incurred last summer, the officials said it actually gives customers a break, by continuing to partially protect them from the extraordinarily volatile wholesale power prices.

“From the beginning of this energy crisis, we promised to shield our customers from the rate shock experienced by San Diego residents this summer,” said Gordon R. Smith, PG&E‘s president and chief executive officer, in a prepared statement. “This proposal delivers on that promise, by holding the line on power costs our customers must pay, until state and federal officials can fix the broken wholesale electricity markets.”

But consumer advocates immediately blasted the idea.

Calling the proposal “obscene,” Doug Heller, of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, said “it should be summarily denied by the PUC.” Heller was incensed by PG&E‘s contention that the plan was beneficial to consumers. “That’s just offensive,” he said. “How dare they suggest that?”

Nettie Hoge, executive director of the Utility Reform Network in San Francisco, agreed. “I think this is really incredible spin _ PG&E posing as our savior,” she scoffed. “It’s fairly outrageous.”

Efforts to reach Public Utilities Commission president Loretta Lynch were unsuccessful, but Hoge said she considered it highly unlikely that the commission would approve such a plan. In fact, although state law requires the rate freeze to end no later than March 31, 2002, she predicted that the commission would resist lifting it at all because to do so would be “political suicide.”

The state law that deregulated California’s electricity markets in 1998 allows utility firms to seek an end to the rate freeze for their customers once the companies have paid off their old power plant debts and other long-term power contracts. As a result, PG&E officials argue that their freeze should be declared over retroactive to August of this year, when they claim those debts were paid off.

But PG&E officials said they don’t want to immediately expose their customers to the full wholesale cost of power, because of the experience of consumers in San Diego, where the freeze ended in 1999. There, retail electricity prices tripled this summer and the public outrage is still reverberating in Sacramento and in other states that also are considering deregulating their electricity markets.

So PG&E‘s plan would let its customers pay off the $3.4 billion in electricity costs from this summer _ as well the high wholesale prices it is now paying _ gradually over five years, through an arrangement similar to a car loan or mortgage.

Under this idea, the average monthly residential bill would increase from $54.50 a month to $63.50 a month in the first year. While that would amount to a 16.5 percent rate increase, it would be less painful than if PG&E passed on the full wholesale rate, which it estimated could boost those monthly bills by nearly 100 percent to $108. PG&E officials did not have estimates for how much bills might increase after the first year, and noted that the rates could be adjusted down by the company if wholesale prices drop.

PG&E spokesman Ron Low said that under the plan, “we are essentially going to act like a bank,” by lending its customers the money to pay down the cost of electricity slowly. Five years from now, when more power plants are likely to have been built in California, he said, competition among those plants should drive down the wholesale price of electricity to the point where PG&E‘s customers can pay the full cost of that power themselves.

Nonetheless, the proposal gives PG&E considerable leeway to raise its rates over that five-year period if the price of wholesale power goes up, as some energy experts fear it might. PG&E officials insist that they need the flexibility to boost rates because they are facing severe financial hardship.

Since deregulation went into effect, PG&E and other utilities have sold off many of their power plants and bought electricity from wholesale suppliers. PG&E estimates that it has paid $3.4 billion more for electricity so far this year than it was able to collect from customers under the freeze.

So far, PG&E has had little luck persuading state regulators to force consumers to reimburse it for those bills. The Public Utilities Commission has balked at making consumers pay on several occasions and a lawsuit filed by PG&E in state court also has flopped. On Wednesday, the California Supreme Court refused to overturn a lower court’s decision denying PG&E‘s request to have consumers pay the $3.4 billion tab.

PG&E officials said they hadn’t reviewed the court’s decision and couldn’t comment. A similar lawsuit filed by PG&E in federal court is pending.

Given the amount of bills it has incurred, PG&E officials said in their proposal Wednesday that the company faces the potential of not being able to borrow enough money to continue operating, which could plunge it into financial ruin.

“If creditors lose confidence in the company they would be reluctant to provide any new money,” its proposal said. As a result, “PG&E would likely become insolvent and be forced into bankruptcy.”

Consumer Watchdog
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