Rate Hikes Up to 60% Proposed by PUC Chief

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Lynch says about half the residential customers of Edison, PG&E would escape increases. Her plan draws fire from all sides.

Los Angeles Times

About 4 million California residential electricity customers will face increases in their monthly bills of up to about 60% under a proposal unveiled Wednesday by the state’s chief utility regulator. Interest groups on all sides promptly condemned the plan as too hard on either consumers or businesses.

The proposal by California Public Utilities Commission President Loretta Lynch would increase the bills of roughly half of Southern California Edison‘s residential customers, who consume medium to heavy amounts, by $8 to $93 a month. Pacific Gas & Electric Co. customers would be hit with hikes of $6 to $87 a month.

About half of the residential customers of the state’s two biggest public utilities would see no increase under the proposal if they continued to consume energy at their current pace.

Lynch said she could not guarantee that more rate increases would not be necessary. “Even these astronomical average rates may prove inadequate,” she said, noting that wholesale electricity prices are still high and unpredictable.

The rate hike, Lynch said at a news conference, is necessary because “federal regulators have failed to follow federal laws to ensure just and reasonable prices.”

The deepening energy crisis compelled Lynch to release her proposal after public hearings on the rate increase already had begun. Lynch said that she wished her proposal had been ready sooner, but that at least some of the remaining public hearings will have the benefit of reviewing it.

PUC passage of the essential elements of Lynch’s plan seems likely.

Along with two of her colleagues on the five-member commission, Lynch was appointed by Gov. Gray Davis, and they often vote as a bloc. Lynch said, however, that testimony later this week from utilities, the public and other interested parties could prompt modifications.

Structuring the $5-billion rate increase is an important but politically sensitive step in California’s attempt to restore stability to the delivery of power to 9 million customers of two financially troubled utilities while protecting the state budget.

The PUC has tried to design rates that would encourage conservation without damaging business. Competing interest groups, ranging from consumer advocates to large manufacturers, have been jockeying for advantage for weeks.

The PUC approved a rate increase of 3 cents per kilowatt-hour March 27 to help pay the state’s mounting power tab, which now exceeds $5 billion. This week, the commission is conducting statewide hearings on how the pain should be shared among millions of residents and businesses. On Monday the panel is set to vote on Lynch’s plan and a similar one by a PUC administrative law judge.

Neither proposal appeared to please anyone.

“The PUC says everyone should share the pain, but we think the fair share of the pain for residential consumers should be zero,” said Mindy Spatt, spokeswoman for the Utility Reform Network, a San Francisco consumer group. “It should be paid by commercial and industrial customers who wanted and still want deregulation.”

Consumer activist Harvey Rosenfield said regulators should go after power generators and their hefty profits rather than ratepayers.

“Rate increases are not the answer, and this is not going to be the end of them,” said Rosenfield, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica. “This is like organized crime: The more you give them, the more they want.”

Commercial and industrial customers would see increases of up to 50%, and agricultural interests would face increases of 23% to 30% under Lynch’s proposal.

Business interests contend that the rate hikes hit them much harder than residential users.

Calling the proposal “a death knell for the California economy,” Jack M. Stewart of the California Manufacturers and Technology Assn. estimated that industrial customers would see their power rates increase an average of 53%. And the pain of the rate hikes will be compounded by blackouts this summer, which the group contends will cost California businesses $21.8 billion in lost productivity.

“For most large manufacturers, energy is a large piece of their operating costs,” Stewart said. “If you add 53% to that, it’s going to severely hamper their ability to do business.”

Unlike residential customers, the business customers are not grouped into tiers based on their amount of usage. Lynch said there was insufficient time to establish a tiering system for nonresidential customers by June 1, when the rate hikes will start showing up on bills.

An earlier proposal by Lynch had attempted to narrow the gap between residential rates and the lower rates paid by nonresidential customers. But the commission president said that goal could not be immediately achieved without seriously damaging the state’s economy.

To protect the largest users from gigantic rate increases, Lynch’s proposal caps the maximum bill increase at 300% for most customers and 250% for agricultural customers.

“While we understand bill limiters may have some troubling conservation impacts, at some point, price signals are unbearable for customers. Bill limiters will protect customers from unanticipated extraordinary bill impacts,” Lynch wrote.

In recent weeks, the commission has received about 20 plans for structuring the rate increase, including one from Davis, who had proposed a slightly smaller overall rate increase. Lynch said her plan incorporates a number of features of the governor’s plan, including a tiered structure that would punish heavy users and reward those who conserve.

Under state legislation, there is no rate increase for consumption up to 130% of baseline, the amount deemed the minimum needed by a customer in a given area and noted on ratepayer bills. Also exempted are low-income customers who already receive discounted electricity rates.

Edison and PG&E said they could not assess how the PUC proposals would affect their customers because the commission had not provided details to the utilities as of late Wednesday.

But PG&E has disputed the commission’s claim that half of customers would not be affected by the increase, noting that only 32% of PG&E customers never exceeded 130% of baseline usage in the last year.

Industrial and commercial customers complained that the plan should not exempt such a large group of residential customers, in any event. A rate increase for these users–based on the PUC‘s estimate that the group will constitute about half of residential customers–could generate an extra $1 billion.

If the PUC insists on exempting so many, the $1-billion shortfall should be covered solely by other residential users, businesses say.

Under Lynch’s plan the burden of paying that amount would be split equally among commercial, industrial and nonexempt residential customers.

If covering the shortfall were not shared by the three groups, Lynch said, some residential customers would suffer a 100% increase in their bills.

The proposal calls for a pilot program, including one that would let federal agencies based in California “experiment with their own market rate policies.”

Lynch challenged federal agencies to try to live with “real time,” or hourly, prices in the volatile wholesale marketplace–a slap at officials of the Federal Energy Regulatory Commission who favor a free wholesale market over price caps. Use of real-time pricing requires installing a special meter.

“‘It would be great if the federal users respond to price signals enough that prices come down,” Lynch said, adding that she was skeptical that would happen in today’s dysfunctional market.

A FERC spokeswoman declined to comment on Lynch’s proposal.

During the third day of PUC hearings, about 200 people gathered at Fullerton College. Seventy people testified, most venting their anger at elected officials and utility companies, whom they blame for the state’s flawed deregulation plan.

“I am opposed to any rate increase for residences and small business,” testified Ruth Shapin, a Santa Ana attorney. “This crisis was created by politicians. PG&E and SCE have transferred billions of dollars to their parent companies. Let them bail themselves out, not the ratepayers.”

Others said the baselines might be unfair because the commission had not taken into consideration home size, the number of occupants and the location.

“It’s going to be hard for many people to stay below the 130% baseline,” said Sylvia Hartman of Lakewood. “Some customers could easily go 400% over the baseline.”

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