With legislative action at a standstill, the California PublicUtilities Commission (CPUC) may pick up the ball and run with it.CPUC President Loretta Lynch said Monday the commission will votetoday on a 30% electric retail rate increase (3 cents/kWh) goingforward and three other measures designed to stabilize thecash-strapped investor-owned utilities and assure power supplieswill continue to flow.

“It is time for California’s power bills to be paid,” Lynchsaid. Audits of the utilities’ power costs confirm that the averagecost of power in California jumped from just under $32/MWh in 1998to $278/MWh in January of this year. “That’s the average cost ofevery hour of every day that California pays for energy,” she said,noting that the state’s overall bill for electricity has jumpedfrom $8.2 billion in calendar year 1998 to more than $32 billion in2000 although energy use was essentially the same in the two years.”Frankly, based on January/February figures, who knows how muchmoney we are going to need to cover our energy costs in 2001?” shesaid.

Saying that the generators/suppliers have had the state “over abarrel” despite all that Gov. Gray Davis has done, Lynch added thatthe CPUC needs to take action on the rates to “balance thefinancial crisis of the utilities and the growing reliabilitycrisis. Given FERC’s failure to act, this commission must act toassure reliability of supply.”

The design of the rate increase probably will be “tiered” withlarger users paying more that smaller users, said Lynch.”Electricity hogs will need to pay more,” and some “specialcircumstance” customers, such as low-income, may be exempt from theincrease, she said. The rates should carry a conservationincentive. But there probably will be less discrepancy betweenresidential and business customers.

The proposed 30% hike would be in addition to the temporary 10%increase approved in January. That temporary 1 cent/kWh hike willbecome permanent under the CPUC proposal. Meanwhile California Gov.Gray Davis has repeatedly promised that the state would find asolution to its power woes without resorting to rate increases.

Despite the proposed increase, the utilities still are stillstuck with $13.7 billion in uncollected wholesale power costs fromlast year and this winter. The rate hike would be effectiveimmediately, but would apply only to forward purchases, leaving theutilities’ past costs and unpaid bills to creditors for resolutionthrough the ongoing negotiations to transfer transmission assets tothe state in exchange for state-backed tax-exempt bonds.

The announcement sent stock prices of the California utilitiessoaring more than 30% yesterday to more than $14/share despite anannouncement by Pacific Gas & Electric (PG&E) that it maytake a $4.1 billion charge against 2000 earnings because ofunrecovered power costs, and the likelihood that the unrecoveredpower costs will remain unrecovered, even if the new rate measureis passed. Last week, Edison International, parent of SouthernCalifornia Edison, announced that it may take an after-tax chargeof up to $2.7 billion for 2000. The utilities still are nearbankruptcy. PG&E has defaulted on more than $700 million ofshort-term unsecured debt since Jan. 17, while SoCal Edison hasmissed payments on $500 million.

The CPUC also is expected to vote on three other measures todaythat likely will increase the pressure on the utilities. Lynchplans to order the utilities to pay qualifying facility generators(QFs) that have not been paid since December and to pay the statewater resources department (DWR) for all of its purchases thus far.In addition the CPUC is expected to begin an investigation of thethree investor-owned utilities’ holding companies to evaluate howthey have responded to the financial crisis.

In regard to the more than $1 billion in unpaid QF bills, CPUCCommissioner Carl Wood said the legislative process has “brokendown, so it is essential that the CPUC act now.” Natural gas priceswill still be used as a formula for QF payments, but the Topock, AZspot point at the California-Arizona border will be dropped infavor of an index at Malin, OR, plus a intrastate transmissioncharge.

Also being dropped is the proposal to have long-term, fixedprice power deals (five- or 10-year deals) with the QFs, said Wood,noting that “hopefully this will provide more certainty, and thelegislature will eventually take the handcuffs off the CPUC” indealing with this issue.

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