Referencing the always combustible mixture of rising natural gas prices and below-normal water levels, Pacific Gas and Electric Co. (PG&E) late Tuesday announced it had filed with state regulators for a retail electric rate increase of approximately $482 million, or roughly 4.5%, effective Oct. 1. The San Francisco-based utility called the gas prices “skyrocketing” and the hydroelectric situation “lower-than-expected.”

The proposed power cost offset increase submitted to the California Public Utilities Commission is designed to be collected during a 15-month period running through December 2009. The proposed increase is strictly limited to recovering the estimated added costs PG&E will face in providing power to its retail customers, the utility emphasized.

PG&E said that natural gas wholesale prices have increased by 30% this year and are forecast to remain high in 2009. The utility attributed the gas price spikes to “a tight supply-demand balance” in the U.S. market overall, lower imports of liquefied natural gas and rising crude oil prices that continue to set all-time records. With California’s and the nation’s preference for gas-fired electric generation, higher fuel prices mean higher retail electricity charges, PG&E said.

“In 2009, high demand for natural gas — one of the cleanest fossil fuels available to generate electricity — is expected to continue upward pressures on the price of natural gas and in turn lead to further increases in customer electricity rates,” said a PG&E spokesperson, noting that the utility’s electricity costs next year are projected to increase by $340 million, resulting in a “less-then-2% increase” above the rates previously estimated to be effective this October.

PG&E said the retail rates also have been impacted by lower supplies of hydroelectric power and increased demand. In the past year, statewide rainfall was about 70% of normal, the utility said.

This unwelcome combination of very high gas prices, soaring demand and lower hydroelectric supplies has had “a significant impact on the cost of electricity,” according to Helen Burt, PG&E senior vice president. To help mitigate the situation, Burt said PG&E is diversifying its energy portfolio and partnering with its customers on energy efficiency programs.

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