Power price shock lingers

Published on

The Daily News of Los Angeles

SACRAMENTO, CA — Despite more than $5 billion in refund settlements with companies accused of price-gouging during the state’s energy crisis, many Californians still will see their electricity bills rise next year.

While about $3 billion was supposed to be returned to consumers through discounts in their utility bills, the settlements have fallen short of their face values, and rising natural gas costs have overwhelmed any potential savings.

Last week, Southern California Edison announced plans to hike electric rates about 15 percent next year, while Pacific Gas & Electric is looking at an increase of 6 percent to 7 percent.

Outside the cities of Los Angeles, Burbank and other municipal areas that have their own power utilities, residents of dozens of cities and most unincorporated regions in Los Angeles County are served by Edison and are facing the major price increases, as are electricity customers in Ventura County.

At most, experts say, the refunds will only help soften the increases because the settlements are coming in over a long period of time and because several of the bigger energy companies, most notably Enron, are in bankruptcy and expected to pay only pennies on the dollar.

“It’s too little too late,” said Doug Heller, executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “It’s like catching the guy who stole 100 bucks from you and requiring him to give you $ 10 of it back. And then the utility company says, ‘Oh, by the way, now you owe us $11.”

“So when you see this Edison proposed rate hike, and you put any refunds in the context of these rate hikes, you realize we’re not getting our money back.”

Part of the reason, he added, can be traced to expensive long-term energy contracts that Gov. Gray Davis, under pressure from the energy industry, signed at the height of the 2000-01 energy crisis.

Overall, energy companies are believed to have gouged California customers by about $9 billion at a time when state officials were desperate for power to prevent rolling blackouts.

Since 2003, state Attorney General Bill Lockyer’s office has announced more than $5 billion in settlements with a dozen companies for overcharging California and manipulating the market during the crisis.

Lockyer spokesman Tom Dresslar said the office has additional pending court actions, including a lawsuit filed against Sempra Energy last month, that could result in several billion dollars more for Californians.

But Dresslar noted legal and federal regulatory hurdles.

“Antiquated court doctrines, federal pre-emption — when you take it as a whole, the whole system’s rigged against the people who got ripped off, and it’s to benefit the pirates who ripped us off,” Dresslar said. “When you look at the obstacles the legal structure and the courts have placed in our paths, $5 billion in settlements is pretty good.”

While the state attorney general fights for more refunds, however, several factors continue to drive energy costs up — most notably steep increases in the cost of natural gas used to fuel many electricity plants.

Severin Borenstein, director of the University of California Energy Institute at Berkeley, said natural gas prices were in the range of $2 to $3 per million British thermal units or BTUs in the 1990s. Today they are around $14 per million BTUs.

That means an electricity-generating plant fueled by natural gas that used to produce power for 2″ cents per kilowatt hour now spends nearly 10 cents per kilowatt hour.

Some of the increase has been driven by Hurricane Katrina‘s effect on natural gas producers along the Gulf Coast. The increase may level off next year as that dissipates, but prices will remain fairly high, Borenstein said.

“What the futures market is telling us is the prices are likely to come down a bit because we have a short-run squeeze now, but they’re going to remain at extremely high levels by historical standards,” he said.

Edison officials said their application for a phased-in average price increase of 15 percent next year is a pass-through of increased costs and won’t boost profits.

And the hike would likely be higher if it were not for the settlement refunds and some financial hedging techniques the utility has used in the natural gas futures market.

“By PUC directive, that (settlement) money as it is received here at the utility is used to pay a portion of the costs of buying power for our customers today,” said Edison spokesman Gil Alexander. “If that money were not being received, a commensurate amount would be added to rates to pay for the power our customers received today.”

Edison is due about $700 million in payments from settlements with energy companies including Enron, Duke and Mirant. Partial payments on the first $400 million have been coming in since 2003, while the first payments on the remaining $300 million are expected to begin in January.

But the refund money is trickling in over a long period of time and at less than face value.

El Paso Corp., for example, is supposed to provide Edison with $263 million out of a $1 billion overall settlement reached with the state in 2003. But half of that amount is to be paid over 15 years.

And Enron‘s settlement of $ 1.5 billion for the state, including $70 million for Edison, is expected to be paid at about 23 cents on the dollar over the years because the company is in bankruptcy.

Southern California Edison, a subsidiary of Edison International, earned $572 million in revenue the first three quarters of 2005, according to company statements. It serves 13 million people over a 50,000 square-mile service area throughout Southern California.

Meanwhile, Pacific Gas & Electric also is expecting to increase rates about 6 percent to 7 percent next year with natural gas prices responsible for about half of that, a PG&E spokesman said.

Other costs can be traced to new state programs for solar power and conservation, as well as standard inflation.

“(The settlements) are definitely playing a role in keeping rates from rising higher than they otherwise would,” said PG&E spokesman John Nelson.

The state’s third major investor-owned utility, San Diego Gas & Electric, plans to hike bills by less than 1 percent next year. A company spokesman could not provide an immediate explanation why SDG&E will be able to keep rates relatively stable while the other investor-owned utilities are raising rates.

The Los Angeles Department of Water and Power, which remained relatively immune to the energy crisis, has not announced plans to seek any rate hikes next year. The attorney general cases primarily affected the state’s three investor-owned utilities, not municipal agencies like the DWP.

Ultimately, consumer groups say ratepayers who were expecting some payback for the gouging during the energy crisis will be disappointed.

“The problem is we’re getting pennies on the dollar in these settlements,” said Mindy Spatt, spokeswoman for a San Francisco-based consumer group, The Utility Reform Network.

“The settlements are nothing compared to what these companies basically robbed from us,” Spatt said. “And we pay the price every month in our electric bills, and there’s no relief in sight.”

Consumer Watchdog
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