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'Moderate' $645M PG&E Electric Fuel Cost Rate Hike Starts

Saying its latest electric utility rate increase could have been two or three times bigger, Pacific Gas and Electric Co. (PG&E) signaled last week that some recent moderation in wholesale natural gas prices allowed it to lower the increase to 6%, or $645 million. Effective Oct. 1, the lower rate hike is a sign that another power rate hike next year might be avoided, according to Tom Bottorff, senior vice president, regulatory relations.

PG&E conducted a press briefing to explain the current outlook for wholesale gas prices and their impact on retail electricity charges, including a national perspective from the American Gas Association (AGA) that indicated current trends, included moderating wholesale gas prices, rising domestic production and slacking gas demand in the United States.

Bottorff said the national wholesale gas price "story has changed dramatically" since July when the San Francisco-based combination utility was looking at $13 gas prices and the prospect for an electric rate increase this fall in the range of 15-17%. He said gas prices now coming in around $8 allowed PG&E to reduce the electric rate hike to the 6% level.

"We now think that electric retail rates could remain flat for most of 2009," Bottorff said.

In regard to the latest rate developments, PG&E made two filings to the California Public Utilities Commission (CPUC) -- one on Tuesday and another on Wednesday, he said. Tuesday's CPUC filing dealt with the cost of energy this year and drove the latest power rate increase.

Bottorff said the utility ended up overall paying more for gas than it had forecast late last year -- an average of $10/dth, compared to an $8/dth estimate, and also the amount of hydroelectric supplies available were lower than anticipated.

PG&E filed a preliminary estimate of its fuel and other costs next year, along with the caveat that a further retail electric rate increase of about $281 million may be necessary Jan. 1. Bottorff said those include more than just the projected wholesale natural gas costs. Still to be figured in the equation is an updated forecast of natural gas costs, and that won't be done until November.

At that time, Bottorff said the utility may conclude that it can actually keep electric rates the same or even lower them. Presently the expected decrease in natural gas costs next year is expected to offset increased electric generation costs elsewhere and permit the rates to be kept flat.

"We now have a wholesale market price that is reflecting strength in natural gas supply and moderate gas demand based on what has happened to weather," said Chris McGill, AGA managing director for policy analysis. This has come about, McGill said, in an environment in which the industry began last winter season with below-normal storage levels, national energy issues have not been resolved in Washington, DC, and liquefied natural gas (LNG) imports have been lower than expected.

More recently, most of the elements that would put upward pressure on gas prices have "turned around," he said, and "we now see prices going in the opposite direction." The overall U.S. gas supply has stayed flat this year at the 62-63 Bcf/d level, but the mix changed with domestic production up about 3 Bcf/d, Canadian imports down about 1 Bcf/d, and LNG imports down 2 Bcf/d, McGill said.

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