State to purchase electricity for SDG&E; Good news for utility, but offers consumers mixed bag

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The San Diego Union-Tribune

A state agency will begin buying electricity for San Diego Gas and Electric Co. and assume costs that the utility contends threatened its future.

Under an agreement reached yesterday, SDG&E becomes like Pacific Gas and Electric and Southern California Edison, which already have much of their power purchased for them by the state Department of Water Resources.

The utilities and their shareholders wanted out of the power-purchasing business because of growing debts incurred from buying at rates that are higher than what they can charge customers. Now the state takes over that role.

Although the agreement reduces SDG&E‘s financial risk, it offers a mixed bag for local electricity customers:

[] The deal could freeze the balloon payment feared by many San Diego area utility customers. These IOUs — resulting from a partial deferral of customer payments to SDG&E — had reached $447 million and were growing rapidly.

[] SDG&E is still due the $447 million, but it’s unclear who will pay it, and when and how it will be paid. In fact, SDG&E said it is continuing to pursue its request for a rate increase in order to begin paying the deferred debt.

[] With better credit and buying in greater volume, the state may be able to purchase power at lower rates than SDG&E.

SDG&E said it moved quickly under the recently passed bill, AB 1X, which put California in the business of buying power under long-term contracts. Debra Reed, president of SDG&E, a Sempra Energy subsidiary, said the utility found it increasingly difficult to shop for power because of growing concern on the part of sellers about getting paid for their electricity.

PG&E and Edison have already defaulted on an array of payments. SDG&E has remained in better shape but has raised warnings about its growing deficit.

“It was getting virtually impossible for us to buy on behalf of our customers because of the credit situation,” Reed said.

She said SDG&E had received quotes of power for 9 cents to 10 cents per kilowatt-hour under certain conditions but noted that the state had broader authority to sign long-term contracts and could likely find lower prices.

“They have a much better potential for buying power,” Reed said.

Under the agreement, the state could purchase at least 60 percent of the power used by SDG&E customers, with the utility obtaining the balance from previously signed contracts and its share of output from the San Onofre Nuclear Generating Station.

All told, SDG&E has agreements that supply about 800 megawatts of power, while its 1.2 million customers need anywhere from 3,000 to 4,000 megawatts to satisfy their demand.

SDG&E was the target of the state’s first relief plan in September, when the Legislature capped customer payments at 6.5 cents per kilowatt-hour and deferred all additional costs until 2002. Those charges were tallied in balancing accounts — the IOUs or balloon payments — that SDG&E estimated would reach $1.5 billion, or $800 per customer, by 2003.

Michael Shames, executive director of the Utility Consumers’ Action Network, said the agreement to let the state buy power is generally good news for SDG&E electricity customers.

“At least the balancing accounts stop growing,” he said. “It still has to be dealt with, but it doesn’t grow.”

Shames noted that local lawmakers fought to include SDG&E in recent legislation, lest area ratepayers be alone in the state in ultimately facing the price of paying unfettered spot market prices for electricity.

Those costs moderated a bit recently. SDG&E said its current billings include a charge of 18.1 cents per kilowatt-hour for electricity, down from 19.2 cents in the previous week’s billings.

The costs contrast with average rates last year of about 10 cents per kilowatt-hour and in 1999 of less than 4 cents. Deregulation, passed in 1996, promised to lower consumer rates.

Although the recently passed state legislation protects SDG&E and the other two major utilities from incurring new debt from purchasing power, the debt that the utilities accrued before the law was passed is huge. Counting SDG&E‘s $450 million, the figure for all three utilities amounts to about $12.5 billion.

Legislators continue to debate how to pay off that sum, with arguments swirling on what the state would get in return. Some consumer advocates say state help would amount to a bailout of the utilities, which helped design the current market and made billions from deregulation earlier.

“It’s just one giant battle between utilities who want a bailout and consumers who have paid enough,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

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