Rate Increases May Be Just Beginning

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Unanswered questions now may mean higher bills soon

The San Francisco Chronicle

When regulators passed an average 40 percent electricity rate increase last week, they insisted this was the last time the state would be reaching into consumers’ pockets to pay for California’s energy mess.

Don’t bet on it.

Numerous questions remain about the costly bailout of the state’s two largest utilities and the billions of dollars in taxpayer money being spent to keep California’s juice flowing.

And a growing consensus has emerged: Rates almost certainly will go up again before the worst is over.

“Based on what the state and utilities have been paying for electricity, 40 percent doesn’t come close to covering it,” said Linda Sherry, a spokeswoman for Consumer Action in San Francisco. “It’s going to be a nightmare this summer.”

Indeed, Gov. Gray Davis admitted last week that there are “a lot of moving parts” to California’s energy equation, and that it is too soon to say whether additional rate hikes will be required.

More tellingly, the governor, after doing his best to distance himself from the latest rate increase, opened the door to supporting future increases that are “absolutely necessary for the good of the state.”


State leaders have yet to get their story straight. Earlier in the week, Loretta Lynch, president of the Public Utilities Commission and a Davis appointee, told The Chronicle that there probably would be no more rate hikes this year.

“We think this will cover everything,” she said of the PUC‘s decision to approve a new 30 percent rate increase and make permanent an average 10 percent “temporary” increase adopted in January.

The move will allow utilities to raise an extra $4.8 billion a year from customers — although it remains up in the air where the bulk of the money will go.

Consumer advocates say state officials are kidding themselves if they think California has solved its energy troubles.

“This summer is when the energy companies will make the most mischief and drive energy prices through the roof,” said Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

Based on his group’s calculations, and the fact that the state is burning through about $50 million a day buying power on behalf of cash-poor utilities, he said it is not out of the question to believe power bills will go as much as 100 percent higher.

“There is no end in sight,” Rosenfield said. “We are at the mercy of economic terrorists, and you can’t bargain with terrorists.”

State Controller Kathleen Connell estimated the state faces a $7.4 billion shortfall if it keeps spending money hand over fist on the volatile electricity “spot” market.

She predicted that the state will shell out nearly $27 billion over the next 18 months to keep the lights on — more than twice the amount in bonds that California is authorized to sell to cover its payments.

Connell said she was “troubled by the fact that consumers already are being rocked by a substantial rate increase, and I don’t want them assuming that’s the total exposure.”

For example, state officials have yet to address the roughly $14 billion in debt hanging over Pacific Gas and Electric Co. and Southern California Edison. Last week’s rate increase will not be applied to that thorny problem.

Moreover, despite a PUC ruling that the utilities must repay the state Department of Water Resources for more than $4 billion in recent power purchases, that too remains a question mark.

Still to be determined: How will the limited revenues collected from ratepayers be disbursed among the state, the utilities and smaller power companies that have had to shut down recently because they are owed millions of dollars.

“The state is at the front of the line,” insisted Steve Maviglio, a spokesman for the governor.

If so, this could leave the utilities and alternative energy providers with nothing to cover their own expenses. The threat of bankruptcy, which has hovered in the background for weeks, suddenly has become a more serious concern.


PG&E‘s chief executive, Gordon Smith, warned that even with higher rates, the PUC‘s decisions to force payments to the state and change how the utility’s debt will be tabulated could exacerbate the situation.

“The actions do not offer a comprehensive solution, fail to resolve the uncertainty of the crisis and may even create more instability,” he said.

On Friday, PG&E‘s parent company, PG&E Corp., said it may have to write off more than $4 billion in debt because of the changes. The company also said it would delay release of its annual report, which was due to be unveiled tomorrow.

“Every day, we calculate how this picture looks in Chapter 11 and out of Chapter 11,” PG&E‘s chief financial officer, Peter Darbee, told financial analysts in a subsequent conference call. “Thus far, we have concluded that shareholders are better off out of Chapter 11.”

That “thus far” rang out loud and clear among listeners. Without more cash, many came away thinking, the likelihood of PG&E declaring bankruptcy is now substantially higher.

“The chance of further rate increases is certainly within the realm of possibility,” said Herbert Hart, research director at Redwood Securities Group in San Francisco. “Somewhere down the line, the PUC will have to act again.”

Consumer Watchdog
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