California regulators are expected today to authorize an estimated $3 billion in utility revenues from increased retail power rates to cover all of the state water resources department (DWR) costs for buying wholesale power in the upcoming months before more moderately priced, long-term, fixed-rate contracts kick in.

The two near-bankrupt major investor-owned utilities are threatening to fight the implementation of the proposed order through the courts, increasing the possibility of bankruptcy filings by one or both of the utilities.

However, regulators indicated Monday that they will hold off a decision on exactly how the allocation to DWR will be made, pending long-awaited details from the DWR as to how much and at what price the state is buying electricity. Current estimates are that its purchases are between $3 and $4 billion.

The CPUC will establish the $3 billion level of revenue required for DWR’s power-buying as the so-called California Procurement Adjustment (CPA), and will launch an accelerated investigation of the utilities’ holding companies regarding how much of the past debt they should absorb. The establishment of the $3 billion revenue figure will be a “financial order” by the California Public Utilities Commission, allowing the state to in turn sell up to $12 billion revenue bonds.

Among the other actions to be considered are expanded voluntary curtailment and load reduction programs that go beyond the largest industrial/commercial customers. The programs include real-time metering for new customers joining the program, and $350/MWh payments to customers bidding parts of their demand on a day-of and day-ahead basis. Blocks of residential customers could also be included.

“I certainly hope we will see even more megawatts of curtailment power than the old, inflexible program (which had 3,200 MW of load involved),” said CPUC President Loretta Lynch. She also said she will introduce another emergency action today, to order Pacific Gas and Electric to begin environmental assessment along the state’s major north-south transmission grid bottleneck, known as Path 15, so that the eventual upgrades can move forward smoothly. (She noted that these upgrades need to be done regardless of the status of the negotiations on the sale of the utility assets to the state.)

The expected actions were previewed in a news media briefing held by the CPUC Monday. As the week began, expectations were running high for a break-through in the logjam in Sacramento — both in terms of a settlement between the state and the private sector utilities and in terms of legislative solutions to help ease California’s continuing peak-demand supply shortage.

On Monday, for the fifth day in the past seven, the state transmission grid operator, Cal-ISO, declared a Stage Two alert, meaning reserves were expected to dip below 5%. Continuing large chunks of baseload generating capacity and about half of the qualifying facility (QF) generators were out of service. In addition, a tower was knocked out on the 500-KV Pacific DC Intertie, resulting in the loss of about 3,000 MW of capacity on the major link between northern Oregon and Southern California. Southern California Edison began voluntary load curtailment programs among some of its largest customers.

Two basic regulatory moves have the debt-ridden major utilities very nervous: (1) the prospect that last week’s rate increase was not enough, and they will still be collecting less in retail revenues than is being paid out to purchase spot wholesale electricity supplies going forward; and (2) an accounting change by the CPUC, adopting a proposal by a leading utility consumer watchdog group, TURN (The Utility Reform Network), could cause the utilities to have to forfeit a lot of their past recovered stranded cost.

Lynch said Monday that if wholesale power prices don’t go any higher than their current “exorbitant” levels, she thinks the 3-cent/kwh increase will be sufficient going forward.

By adopting the TURN proposal to merge the separate Transition Revenue Account and the Transition Cost Balancing Account, the CPUC completely would change the ratemaking rules put in place with the start of electric restructuring in January 1998, PG&E officials said. The comments were made in a creditors’ briefing last Friday.

“It is clear that the CPUC has no intention of making any of the incremental revenues available for paying any of the utilities’ past due debt,” said Peter Darbee, PG&E Corp. senior vice president and CFO. “This is troubling because the recovery of the past costs will provide the cash to pay off the companies’ creditors.”

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