Utility crisis grows despite rate increase

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California considers power agency

The Washington Times

LOS ANGELES – Immediate catastrophe was probably avoided in the California power crunch last week when officials allowed the state’s two largest electric utilities a 90-day rate increase of 9 percent for residential customers and up to 15 percent for businesses.

But the crisis continues full blast because the temporary rate increase satisfied nobody, including Democratic Gov. Gray Davis and the state Public Utilities Commission that imposed the rate increase.

At the same time, some potential long- and short-term solutions appeared to emerge at week’s end. The utilities commission, prompted by Mr. Davis, urged in its price-increase order that state legislators float a $7 billion bond issue to bail out the utilities if they default on any of their current debt, with electric customers eventually paying the bill.

And Mr. Davis and state lawmakers began private discussions on creating a state power agency patterned after the Tennessee Valley Authority, aiming to buy back power plants sold off as part of California’s deregulation plan, which Mr. Davis calls a “colossal failure.” Such an agency could condemn power plants and buy them at whatever courts set as fair market value, with the money coming from a $10 billion state budget surplus.

All sides agreed at week’s end that something beyond the modest rate increase would be needed.

Californians aren’t the only Americans suffering from utility shock. Bills are soaring nationwide. The Energy Department is forecasting a 40 percent rise in natural gas prices and a 29 percent boost in fuel oil.

Wall Street was plainly dissatisfied with California’s rate increase: Shares of Southern California Edison Co. and Pacific Gas & Electric Co. dropped by more than 35 percent when the size of the increase was announced, causing major drops in some stock indexes, before recovering slightly.

The relatively small increase, said Standard & Poor’s analyst David Bodek, “suggests the regulators are not . . . interested in maintaining the financial viability of the utilities.” Some rating firms dropped Edison and PG&E bonds to junk status.

The two big utilities, which together serve 21 million electric customers, complained the increase won’t raise enough revenue to pay off the $11 billion-plus debt they said they accumulated buying wholesale power this fall. They warn they may not have enough cash to buy electricity from power providers who, under the 1996 California deregulation plan, bought generating plants that formerly belonged to the utilities. That could mean rolling blackouts, they say.

PG&E warns its precarious finances may also interfere with its ability to secure supplies for natural gas customers throughout Northern California.

SoCal Edison warned its customers to expect hour-long power outages at least once a week starting in two weeks unless the rate is increased or supplemented. Only hospitals and other emergency services would be exempt.

“Bankers will not lend on the basis of this rate increase,” said PG&E Chairman Robert Glynn, predicting his company will be forced to default on some debt later this month.

“There’s a variety of actions that the state of California could take, as well as the utility itself could take, as well as what the utility holding company could take, before you begin rationing power,” said PUC President Loretta Lynch, a Davis appointee and a former aide to the governor.

“All sorts of folks trade on all sorts of rumor and all sorts of pressure,” she added. Mr. Davis threatened on national television last month to invoke his emergency powers, which would allow the state to take over and temporarily operate power plants without buying them.

Consumer groups also were angry, fearing the price increase will be the first of many over the next two years.

“I expect we’ll have another one within a couple of weeks,” predicted Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights. “This one was simply designed to look moderate, but it’s only the beginning.”

His group threatens a June 2002 ballot initiative that would mandate a state government buyup of power plants if the legislature does not act.

“This is a slippery slope,” warned Nettie Hoge, executive director of the Utility Reform Network. “It assumes that ratepayers should bail out the companies, but they can never fill the black hole of greed of these generators. It keeps the door open for more increases later.”

Some consumer advocates noted that while SoCal Edison may be broke, its parent company, Edison International, holds assets of more than $38 billion and could easily pay off its subsidiary’s debt. They maintain that Pacific Gas & Electric Corp., parent of PG&E, has assets of about $33 billion.

“The parent companies are flush with cash, so the whole thing is ridiculous,” said Mr. Rosenfield.

Meanwhile, state legislators began a special session devoted to the energy crisis and Mr. Davis said he would unveil specifics of his plan to solve the problem in his annual state of the state speech tomorrow. So far, he has publicly advocated only reinstating state authority to regulate power plant shutdowns and a speedup in building new generating facilities.

The temporary rate increase, which will raise the average electric bill in most of California by almost $6 per month, embodies a compromise Mr. Davis tried to broker in several meetings with utilities and consumer groups late last year.

But SoCal Edison and PG&E executives refused to budge from their demand for a 30 percent rate increase. And consumer advocates maintained customers should pay no more because they were promised in 1996 and again during an initiative campaign in 1998 that there would be no price increases until mid-2002.

Mr. Davis insisted the utilities must accept some loss, while consumers should accept an increase of about 10 percent. The regulatory commission unanimously imposed just those conditions.

Consumer Watchdog
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