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Los Angeles Times

As painful as Tuesday’s electricity rate increase will be for some consumers, power experts across the ideological spectrum say California is not yet close to being free of the energy crisis that has engulfed it and threatened its economy.

Because of that, still more rate hikes are possible, they say.

Consumer advocates, power company officials, legislators and regulators disagree widely on the causes of and cures for the state’s problems. But they agree that California’s energy woes are dizzyingly complex. And the rate hike makes nary a dent in many dimensions of the problem.

“Is it over? Heavens no!” said Assemblywoman Jackie Goldberg (D-Los Angeles), who heads a state Assembly panel investigating summertime power supply issues. “It’s a necessary step, but we’re certainly not out of the woods yet.”

The increase, along with another important action Tuesday by the PUC, did resolve two major issues–how the state will continue to buy electricity that the financially shaky utility companies cannot purchase and how electricity consumers will repay California’s treasury for those purchases.

But the commission left unresolved a host of other questions: what to do with the roughly $ 14 billion in debt the state’s two biggest utility companies racked up in recent months buying expensive power; whether the state will buy the electricity transmission grid those utilities own; where to find about $ 1.5 billion the utilities owe to producers of alternative energy, many of whom have not been paid in months; and how to wrap up negotiations to sign long-term contracts with generators to supply power in years to come.

Said PUC President Loretta Lynch: “Until we can get wholesale prices under control and get folks to conserve, we’re going to be in this pickle for a while.”

Resolving the issue of repaying the treasury for power purchases was crucial because the state is spending $ 45 million to $ 55 million a day to buy electricity. To cover those costs, the state is supposed to float bonds, which would be repaid from electricity bills. But without the higher rates, officials feared there would be no way to cover the bond payments. And without the bonds, all state taxpayers–and not just customers of the private utilities–would be on the hook for the debt.

In addition to raising rates, the PUC on Tuesday approved a formula that will determine the size of the bond issue, expected to be the largest of its kind in U.S. history.

The formula allows for $ 12 billion in bonds. The state’s three major private utilities, Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric, will have to determine how much power the state is buying for them–the figure is roughly 30%–and use a proportionate amount of the money they collect from customers to pay the state back.

A $ 12-billion bond issue is significantly larger than earlier estimates that pegged it at $ 10 billion. But even the larger number is far less than some believe will eventually be needed to cover the cost of power the state is buying.

Unless prices are stabilized, state Treasurer Phil Angelides and others have warned, further bond issues may be needed. Those, in turn, could require more rate increases.

“It’s possible that, with the rate increase and if we do a good job with conservation, it’s possible that the bonds may be less,” said state Sen. Debra Bowen (D-Marina del Ray). “It’s also possible that, given the situation this summer, where we have not been able to secure anything close to our power needs . . . we could be paying significantly more.”

The rate increase, which kicks in only for customers who use significantly more power than a “baseline” amount, is intended to ease the situation by inducing conservation and thereby cutting demand–forcing “energy hogs” to switch off spa pumps or pay the price, as Lynch put it.

But no one can predict how the “hogs” will respond or whether the rate hike–plus conservation incentives moving through the Legislature and the completion of several new power plants this summer–will be enough to spare the state from forced outages.

Tuesday did little to fuel optimism. Despite temperatures far milder than on a typical summer day, another Stage 2 energy alert was declared by the state’s Independent System Operator after imports dropped sharply. The state avoided blackouts, “but it was really close,” a Cal-ISO spokeswoman said.

Some state forecasts have California squeaking through the hot months with no outages, but private forecasters see at least 20 hours of blackouts. And Reliant Energy, one of the power plant owners, predicts 1,100 hours of blackouts in the state this year.

Beyond the problems of supply, the state has still not resolved the question of the utilities’ debt. Edison and PG&E say they’ve lost nearly $ 14 billion since June because they have had to pay high wholesale power prices that the state’s deregulation law bars them from passing on to ratepayers.

Although the PUC estimates that the rate increase will generate an additional $ 4.8 billion in revenue annually, most of that will go to paying off bonds and other expenses. None is earmarked to relieve the utilities’ debt.

“When you do the math, the amount of money just doesn’t get you very far,” said Assemblyman Fred Keeley (D-Boulder Creek).

That is where buying the transmission lines is supposed to enter the picture. Gov. Gray Davis wants the state to pay $ 7 billion for the lines. PG&E and Edison could then use the infusion of cash to pay off their bills and become credit-worthy once more.

But negotiations over sale of the transmission grid seem to have bogged down. Meanwhile, support for the deal in the Legislature appears to be slipping. Republicans have long been opposed, but now support among Democrats is waning.

Keeley, a critic of the transmission purchase all along, believes that the state should instead buy the utilities’ hydro-electric generators, contending that they would bring in revenue from the power generated at the dams.

“We’re just going to sink dough into that transmission system ,” Keeley said, adding that the grid needs an estimated $ 1 billion in repairs. The hydro system, by contrast, would be a revenue-producing asset that could help lower rates, he said.

A related question–still unresolved–is the fate of the state’s nearly 700 producers of alternative and renewable energy, which supply more than a quarter of the electricity used by California consumers. In a separate action Tuesday, the PUC ordered utilities to begin paying the producers–whose megawatts are desperately needed and who, in many instances, have not been paid since November.

On Tuesday, the small producers delivered a little more than half of their usual supplies to the utilities–a trend that has dragged on for several weeks and last week helped nudge the state into blackouts.

Producers welcomed the PUC‘s order that they start getting paid. But, they said, the move failed to address back payments, estimated at $ 1.5 billion, owed by Edison and PG&E.

“Generators find it more predictable and less risky to operate in Third World countries than they do in the state of California,” griped Marty Quinn, executive vice president and chief operating officer of Ridgewood Power LLC, which owns three small gas-fired generators.

Any move to resolve that issue, of course, would increase the debt owed by the utilities.

On another front, state negotiators are finding it difficult to seal long-term electricity contracts at rates more favorable than those on the volatile spot market.

So far, only 22 contracts have been signed, in part because generators are reluctant to commit to lower prices while they’re still owed billions of dollars by the near-bankrupt utilities. Experts say the power secured by the current contracts will supply less than half of what the state will need this summer.

Despite all the unsettled questions, at least one utility analyst, Dan Ford of the Lehman Bros. investment firm, said the PUC‘s actions should remove the immediate threat of utility bankruptcy and begin to lift the “California cloud” over electricity generators.

But in a sign that the energy crisis is still causing concern on Wall Street, Standard & Poor’s said it would continue to carry a cautionary credit rating for the state.

The rating agency, which placed California on a “credit watch” after the state government began spending millions to purchase electricity, said in a news release that it was not clear whether the rate hike would be enough.

Hovering in the background, meanwhile, is the threat of a ballot initiative that could unravel whatever solutions state officials ultimately craft. Leaders of the Foundation for Taxpayer and Consumer Rights have vowed that any utility “bailout” would likely trigger a “voter revolt.”

“The rate increase certainly makes an initiative more likely,” the foundation’s lobbyist, Doug Heller, said Tuesday. If Gov. Davis does not protect the public from “profiteers,” Heller said, his group is ready to push forward with an initiative in 2002.

Consumer Watchdog
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