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CA Utilities Ask to End Rate Freeze

CA Utilities Ask to End Rate Freeze

Responding to state regulators, California's two largest electric utilities in separate filings last week proposed that the state end the four-year-old rate freeze and permit them to buy more supplies outside of the state-chartered wholesale spot power market as a means of bringing down excessively high wholesale prices. Part of the means of bringing stability would include rate increases for the utilities and price caps for merchant generators and marketers selling electricity in California.

As they have done at the federal level, both utilities repeated that "prompt action (by the California Public Utilities Commission) is essential" to stabilize the current troubled electricity restructuring and develop longer-term solutions. CPUC action is expected by the end of this year.

The essence of both filings will be reiterated by the utilities in an opening CPUC hearing in San Francisco that starts the regulators' formal examination of the revenue under-collection issue and related wholesale price spike issues.

Southern California Edison Co. and Pacific Gas and Electric Co. took the separate actions as part of the state regulators' examination of the utilities' now-$5 billion under-collections of wholesale power costs they have paid since June that greatly exceeded the frozen rates they have collected from customers.

Edison proposed a four-point program, including a "modest rate increase not to exceed 10%" beginning Jan.1, 2001. PG&E's utility suggested transferring the under-collections to a new balancing account, determining post-freeze rates and establishing rate stability for retail customers "that will soften the volatility of market prices for wholesale power while allowing the utility to fully recover such costs over a reasonable period of time."

Both utilities directly countered proposals by a statewide utility consumer watchdog group, TURN, that monies collected as part of the stranded cost recovery charges, which amount to billions of dollars, be applied to the under-collections. Both utilities also asked for a determination on the long-term disposition of their remaining hydroelectric and nuclear generation assets.

The bottom line for both utilities is obtaining the CPUC's okay to recover the wholesale power cost under-collections after the rate freeze is lifted-authority that California's other major investor-owned utility, San Diego Gas and Electric Co., already has as part of retail rate price cap law passed by the state legislature in August specifically to give relief to SDG&E's customers.

Beyond that threshold, Edison and PG&E differ somewhat in their filings.

"PG&E is willing to lend its financial resources to help its customers work through the time required to pay down these unrecovered costs through a sensible rate stabilization program and possibly through reasonable accounting mechanisms other than those proposed here," the utility's filing stated.

"However, PG&E is fundamentally opposed to any strategy which conveniently changes the accounting and ground rules now and leaves the company holding the bag for these costs-whether they are called stranded transition costs or stranded non-transition costs."

One of the four points in Edison's filing, reiterated in a telephone press conference Thursday by CEO Stephen Frank, asks the CPUC to "confirm that utilities will be permitted to recover their reasonable procurement costs incurred on behalf of customers." (The utilities want this assurance for the financial community, and in their parent companies third quarter earnings reports this week there were no charges taken for the under-collections, contrary to SDG&E's parent, Sempra Energy, which yesterday announced a $30 million charge against utility earnings.)

Edison also stressed that the CPUC should complete its review of several bilateral contract deals totaling 500 MW that it has before the regulators as part of a broader effort to "support market reform."

Richard Nemec, Los Angeles

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