The Associated Press

State regulators have given electrical utilities extra time to show their financial hardship merits a significant rate hike for 24 million Californians.

Meanwhile, Gov. Gray Davis has so far come up empty in his search for common ground between consumer advocates and utility executives, who want to raise rates immediately by as much as 30 percent.

State Public Utilities Commission President Loretta Lynch said Friday’s session – and an independent audit due early next week – would help determine whether the agency should approve a rate hike.

Officials at Southern California Edison also looked ahead with a plan that could balloon residential rates by 76 percent over the next two years. Pacific Gas and Electric Co. proposed a nearly 40 percent increase by next December.

PG&E and SoCal Edison say they will go bankrupt if they cannot charge higher rates.

But some advocates said bankruptcy isn’t such a bad idea.
“They created this mess and they need to solve it themselves,” Harvey Rosenfield, of the Foundation for Taxpayer and Consumer Rights, said after emerging from an hour-long session between Davis, consumer groups and utility executives.

Rosenfield said the federal oversight and handholding of bankruptcy would help struggling utilities keep the lights on and not stick customers with the bill.

Utilities counter that bankruptcy would not reduce the cost of power and would wreck the utilities’ credit ratings to boot.

“To suggest bankruptcy for California’s utilities is a good thing is irresponsible and dangerous,” said Ronald Low, a PG&E spokesman.

SoCal Edison attorney Henry Weissman brought that message to the PUC meeting.

“The overriding public interest is to keep the lights on,” Weissman told the commission.

Deregulation was supposed to lower energy prices for consumers by increasing competition. Instead, PG&E and SoCal Edison have found themselves captive to energy wholesalers, whose profits have soared.

The utilities have lost more than $9 billion buying energy, but a rate freeze prevents them from passing this cost to consumers.
Utilities want the PUC to approve sharp, immediate rate hikes – 26 percent for PG&E and 30 percent for SoCal Edison.

That would raise average $55 electric bills to $68 and $71.50 per month.

But SoCal Edison wants longer-term rate hikes as well, according to documents made public Thursday. The company has asked the PUC to let it raise rates 5 percent each six months for the next two years. Those additional hikes would kick in if SoCal Edison loses another $1 billion in the next six months – should the company make money, it would have to cut rates by 5 percent.

If SoCal Edison continues to lose money over the two-year span, electricity prices could increase a total of 76 percent.

The utilities said they need the money to stave off bankruptcy and assure Wall Street of their long-term credit worthiness.

“PG&E needs enough cash and enough certainty that procurement costs will be recoverable,” said PG&E lawyer Chris Warner.
The PUC hearings are designed to give the public a chance to voice their opinions before the commission votes Jan. 4 on specific rate increases.

“I really don’t want to see the rates go up 26 percent,” said Dorothy Diez, of San Francisco, a retired receptionist. “I have a very low income and I will be hurt.”

Such prospects attracted consumer advocate Ralph Nader to the PUC hearing.

“I think Gov. Gray Davis‘ political career hangs by a few kilowatt hours,” Nader said. “Will he stand for corporate dollars from these utilities who contributed to his campaign, or will he stand by the millions of Californians who voted for him?”

Demand for energy, even in booming California, has risen by a modest 2 percent a year over the last decade. But with an apparent abundance of power available outside the state, no new power plants were constructed.

Now, the state’s electricity grid is in turmoil. In June, canny power wholesalers spotted flaws in California’s system and prices skyrocketed. Energy supplies got tighter with drought in the Northwest and a significant number of plants down for maintenance and repairs.

The rate freeze, part of California’s 1996 deregulation law, allows the utilities to charge no more than 6.5 cents per kilowatt hour. At the time, that was considered more than sufficient to protect the monopoly utilities as they sold off assets and made the change to a deregulated market.

Before deregulation, wholesale electricity typically cost 3 cents per kilowatt hour. In recent days the price of electricity climbed briefly to $1.50 per kilowatt hour.

Utilities and consumer groups did agree on one point Thursday – that the Federal Energy Regulatory Commission must cap wholesale energy prices, said Michael Kahn, chairman of state Electricity Oversight Board.

FERC has until Jan. 2 to respond to a SoCal Edison federal lawsuit that would force FERC to curb wholesale prices immediately. PG&E is preparing to file a similar suit, Low said.
Davis plans to convene a special session of the Legislature in January and has said he’ll pledge at least $1 billion to increase energy conservation and supplies.

Davis has said it will be another two years before deregulation will work smoothly, with additional supplies satisfying demand.
“It’s clearly not working now,” Davis said earlier this week. “It’s an experiment that, at best, was prematurely launched in California.”