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Los Angeles Times

With protesters jeering their disapproval, besieged utility regulators Tuesday adopted the largest electricity rate hike in the state’s history and defended the action as the only way to keep the lights on for millions of customers.

The California Public Utilities Commission unanimously approved an increase of 3 cents per kilowatt-hour. That will boost rates by as much as 42% for some Southern California Edison customers and up to 46% for some served by Pacific Gas & Electric Co.

The rate increase, which will cost customers nearly $ 5 billion a year, takes effect immediately but will not show up on utility bills until at least May.

The rate hike is the most far-reaching and politically volatile action the state has taken thus far to ease an 11-month-old power crisis that has nearly bankrupted the two largest utilities and triggered blackouts. But critics say it does not solve the fundamental problem of runaway wholesale electricity prices.

“The PUC has done all it can do to fight wholesale energy prices that are unjust and unreasonable,” said commission President Loretta Lynch. “We maintain the responsibility to keep the lights on. . . . I believe that adding another 3 cents will comprehensively address the need for revenues.”

The commission took steps to have utilities begin paying the state Department of Water Resources for the nearly $ 3 billion in power it has purchased for them since mid-January.

The PUC also ordered utilities to start paying for future power from alternative energy producers who are starved for cash and struggling to operate. The blackouts last Monday and Tuesday were precipitated in part by loss of power from such companies.

But it was the rate increase proposal that packed the auditorium at PUC headquarters. And the drama of the vote–and the vocal opposition–spurred each of the five commissioners to forcefully defend the unpopular action.

“These are extraordinary moments in California’s history,” declared Commissioner Geoffrey Brown, a recent appointee of Gov. Gray Davis. “And extraordinary moments require extraordinary courage. Loretta Lynch has taken a lot of bad hits. But it was she who stepped up to the role of leader in California.”

Rate Increase Lacked Support

Lynch proposed the rate increase, even though an administrative law judge at the PUC concluded that an increase was unnecessary and the PUC‘s own consumer protection arm, the Office of Ratepayer Advocates, opposed it. She also did not have the public support of Davis, who appointed her and two other commissioners.

Davis has distanced himself from the PUC‘s action, saying the commission was acting independently and that he remains unconvinced that a rate increase is necessary.

Commissioners Henry Duque and Richard Bilas–who were appointed by Republican Gov. Pete Wilson–called the rate hikes long overdue.

“Unless ratepayers want to face substantial rolling blackouts this summer, we have to start paying our power bills,” Duque said. “It cannot be done with the current rates.”

Saying “there is just no blood left in the turnip,” Bilas warned that “absent an immediate rate increase, the utilities will be in Bankruptcy Court.”

Before the vote, sign-carrying protesters chanted, “Rate hikes, no way, make the energy companies pay.” And the commission heard a parade of witnesses, most opposing the rate increase. Some called on the state to use eminent domain to seize power plants, as Davis said he might do as a last resort.

Doug Heller, of the Foundation for Taxpayer and Consumer Rights in Santa Monica, told the commission, “Go to these power pirates and tell them the state treasury is not their money orchard.”

Barbara George, of Women’s Energy Matters, said, “We should give the generators 24 hours to sign their plants over to the state and leave.” George was one of several people ejected for repeatedly disrupting the meeting.

At a hearing Monday, representatives of agriculture and manufacturing industries warned that the increase would hurt their members and the California economy.

The rate hike is the state’s largest, according to the Office of Ratepayer Advocates, which researched the issue.

Because the electricity rate is just one of many charges on a monthly utility bill, the overall effect will be about a 28% increase in monthly bills, said PUC staff.

Before the PUC action, homeowners and renters in Edison territory paid 7.2 cents per kilowatt-hour for electricity and another 5.3 cents per kilowatt-hour for other services. The new rate, totaling 15.5 cents per kilowatt-hour, boosts the overall bill by about 24%. The increase is about 26% for PG&E residential customers. But under Lynch’s proposal, those increases would not be applied equally.

To encourage conservation, she seeks a tiered system that would charge miserly consumers of energy no more than current rates but would impose the new higher rates on bigger users.

The proposal aims the rate increase at those customers who use 30% or more beyond a so-called baseline amount, which is about half of the average residential use per month and varies by region.

Exactly who will pay the higher electricity rate will be determined by the PUC in hearings over the next month. Under Lynch’s proposal, nearly half of all residential customers would be spared rate increases.

Tiered Rates to Encourage Saving

Energy experts say tiered rates would encourage conservation, but they disagree about how much.

Davis energy advisor S. David Freeman, general manager of the Los Angeles Department of Water and Power, said utilities have long used tiered rates when charging low-income customers. “So this is not brand new. It’s just a more aggressive use of it,” he said.

UC Irvine economist Peter Navarro said he doubted that tiered rates would do much to stave off blackouts. The greatest conservation gains come from investment in efficient appliances, he said, and that’s why tiered rates are “no magic bullet.”

The increase will not show up in utility bills until May at the earliest, said Paul Clanon, chief of the PUC‘s energy division.

The higher charges for electricity consumed between now and whenever the new rate structure is incorporated in monthly bills will be calculated retroactively and charged to future bills, Clanon said.

Utility executives and consumer advocates all threw up their hands at the question of whether the rate hike will be enough.

“Have we gotten the number right?” Duque said. “I don’t know. I hope we have. But this is a step in the right direction, and we’ll return any money not used to buy power.”

Bruce Foster, a Southern California Edison vice president, also said the rate increase is a step in the right direction. “Only time will tell,” he said, “if it is sufficient to meet the need.”

In a statement, PG&E welcomed the PUC action as a “dose of realism,” but said the commission left unresolved a host of issues, including how much money the utility will have to pay for power that the state purchases for PG&E customers.

The PUC estimates that the increase will bring in an additional $ 4.8 billion annually from the 24 million people served by Edison and PG&E.

But that amount doesn’t go far in today’s California wholesale electricity market.

The state and utilities spent $ 5.2 billion in January buying electricity. The state, through the Department of Water Resources, has spent nearly $ 3 billion in taxpayer money to buy electricity on behalf of the utilities since Jan. 19 because power generators refused to sell to the cash-strapped utilities.

Money utilities collect from their customers, even with the new rate hike, is expected to cover a wide array of expenses, including payments on $ 10 billion or more in revenue bonds that the state hopes to sell this spring to cover the state’s cost of buying power.

“The numbers don’t add up,” said Jason Zeller, an attorney with the Office of Ratepayer Advocates. “Massive additional rate increases are my concern. We are sticking a finger in the dike unless wholesale prices come down.”

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