San Diego Union Tribune

State regulators Tuesday approved the biggest rate increase in California history for the customers of Pacific Gas and Electric and Southern California Edison, but Gov. Gray Davis said the increase is premature.

The governor, appearing to soften his long-standing opposition, said he would support a rate increase only if financial information shows that a rate increase is ”necessary for the good of the state.”

The Public Utilities Commission, controlled by Davis appointees, voted 5-0 for an immediate rate increase. A statement from Davis, who usually demands that appointees reflect his policy, did not say whether he would ask the PUC or the Legislature for a rollback if he concludes the increase is unneeded.

”He can ask,” said Steve Maviglio, Davis’ press secretary. ”That is one of many options. But now we are waiting for the numbers to plug in the data and see if a rate increase is necessary.”

The PUC has not yet acted on the request of San Diego Gas and Electric for a rate increase. SDG&E has a debt of $681 million but has been paying all of its bills, unlike PG&E and Edison. Those companies say they have debt of $13 billion.

SDG&E is in a different situation because its rates were capped by legislation in September that guarantees payment of its debt, allowing the utility to borrow. The bills of SDG&E customers soared last summer when the utility became the first to be deregulated.

”Since the PUC has approved rate hikes for Edison and PG&E, we would hope they give an expedited review to our request for an increase of 2.3 cents per kilowatt hour,” said Ed Van Herik, a SDG&E spokesman.

Consumer groups warned that out-of-state generators, who have been ordered by FERC to make some rebates for overcharging, will make even more money under the rate increase. Some are urging Davis to seize California power plants owned by the generators.

”These people are war criminals,” said Mike Florio, an attorney for The Utility Reform Network in San Francisco.

The PUC meeting, which occurred on a day when the state was hit by a Stage 2 alert because of reduced imports from the Northwest, was interrupted by shouts from demonstrators who want a state-owned power system. They chanted, ”Public power now, we won’t pay” and ”Rate hikes no way, make the energy companies pay.”

Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica, which is threatening to put a public power initiative on the ballot next year, said some attorneys think the abrupt rate increase can be challenged in court.

Assemblyman Rod Pacheco, R-Riverside, announced that he will introduce legislation to repeal the rate increase. He said a decision should be made not by appointees but by elected officials who are accountable to the public.

Democratic legislative leaders, who have large majorities in both houses, said Monday that they have reluctantly concluded a rate increase is necessary. Davis is scheduled to meet with Assembly Democrats this afternoon.

The rate increase approved for PG&E and Edison Tuesday is 3 cents per kilowatt hour. The PUC president, Loretta Lynch, said media reports of the increase amounting to a 40 percent rise are inaccurate.

Lynch said the increase in the monthly bills of ratepayers would be about 26 percent if applied across the board. She bases her figure on the total bill that includes electricity, transmission, distribution and other costs.

The media’s characterization of the rate increase as 40 percent is based on only the cost of electricity, not the total bill. The electricity costs before the increase were 7.2 cents per kilowatt hour for Edison and 6.7 cents for PG&E. SDG&E‘s rate is 6.5 cents.

Lynch proposed the rate increase after a report issued last week showed that the state, which was forced to begin buying power for the utilities in mid-January, will have to spend more than expected. A state plan to lower costs through long-term contracts will fall short this summer.

The state has been spending about $1.5 billion a month to buy power. The PUC also voted unanimously Tuesday to give the state a share of the monthly bill collected by utilities, which will be used to finance a bond of $10 billion or more to repay the state general fund for the power purchases.

The state was jolted last week by rolling blackouts that few expected before summer, when heat drives up the demand for electricity. A number of small generators that provide a quarter of the state’s power are not operating because they have not been paid by utilities.

The PUC voted Tuesday to order Edison and PG&E to begin paying the small generators under a new formula that links their payments to the price of natural gas at the Oregon border, rather than at the Southern California border with Arizona. Prices at the Arizona border have been 50 percent higher.

David Fogarty of the Western States Petroleum Association, which represents 50 small generators, said many of the small plants in Southern California will have to continue to buy their natural gas at the higher price on the Arizona border.

”Many of them will find it uneconomic to continue to operate,” Fogarty warned.

Edison has not paid the small generators in the federal ”qualifying facilities” program since November. PG&E has been paying them only about 15 percent.

The PUC did not order the utilities to pay off the $1.5 billion they owe to the small generators. Jan Smutny-Jones of the Independent Energy Producers said some of the small generators will not be able to buy gas until they can pay their debts.

Many of the small generators produce power from ”renewable” sources such as solar, wind, geothermal and biomass. But most of the small generators use natural gas turbines that also produce heat for commercial purposes.

Whether Lynch acted on her own when she proposed the increase or was prompted by the Davis administration is a topic of speculation. Davis aides told reporters during a background briefing yesterday that they did not learn of Lynch’s proposal until Sunday night.

They said the governor was briefed Monday morning and that he did not urge his PUC appointees to delay the increase. An Edison official said the utility received the proposal late Monday morning and had little time to prepare for a hasty PUC hearing on the increase that afternoon.

The two commissioners appointed by former Gov. Pete Wilson, Richard Bilas and Henry Duque, said they have been urging a rate increase. But both complained of the short notice and the lack of time to study the complex proposals approved Tuesday.

Davis aides said they do not understand how Lynch arrived at an increase of 3 cents per kilowatt hour. The governor is waiting for estimates of state power purchases this summer, available generation, the effect of conservation, the potential for federally ordered refunds from generators, and other data before he makes a rate decision.

The Davis appointees on the commission, Geoffrey Brown and Carl Wood, praised Lynch for showing courageous leadership.

The increase approved Tuesday, which utility spokesmen said was the largest in their history, comes on top of a 9 percent residential increase for Edison and PG&E imposed in January and a scheduled 10 percent increase next March, when a ”rate reduction” paid for by a $6 billion bond expires.

Lynch said the rate increase approved Tuesday takes effect immediately, but will not show up on customer bills until May or later. The PUC is working on a plan to design the increase to encourage conservation, giving the biggest increases to those that use the most electricity.

About 45 percent of the utilities’ residential customers will have no increase because of legislation exempting households that use 130 percent or less of the ”baseline,” a minimum amount of electricity use that varies with climate zones around the state.