Utilities seek immediate rate hike to avoid bankruptcy

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JOHN HOWARD, Associated Press Writer Wednesday, December 27, 2000 ©2000 Associated Press

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2000/12/27/national2137EST0656.DTL

(12-27) 18:37 PST SAN FRANCISCO (AP) -- Two California utilities pleaded Wednesday for permission to make consumers pay as much as 30 percent more for their electricity, saying deregulation has left them $9 billion in debt.

Pacific Gas and Electric Co. and Southern California Edison Co. urged the state's Public Utilities Commission to lift a rate freeze that has stabilized electricity bills for 10 million homes and businesses for the last three years. The cap is to expire in 2002.

The investor-owned utilities also want approval for rate hikes -- 26 percent for PG&E and 30 percent for SoCal Edison. That would raise an a $55 electric bill to $68 and $71.50 per month.

Deregulation approved under a 1996 law was supposed to lower energy prices for consumers by increasing competition. Instead, California utilities have found themselves captive to energy wholesalers, whose profits have soared.

California has been roiled for months by power shortages and price spikes, with some ratepayers reporting a tripling of their bills. On Wednesday, Energy Secretary Bill Richardson extended for another week his order requiring electricity producers to send power to California to ease shortages.

At a public hearing in San Francisco, the utilities said they need the rate hikes to stave off bankruptcy and assure Wall Street of their long-term credit worthiness.

They said their losses have climbed dramatically as they buy energy at sharply higher wholesale prices, but are barred by the rate freeze from passing the costs on to customers.

``We are out of credit and we are close to being out of cash. People will not lend us money to buy power. You need to understand that,'' PG&E General Counsel Roger Peters told the commissioners.

The PUC ruled last week that electricity rates should be increased and will decide on the amount of the rate hike on Jan. 4.

Gov. Gray Davis, who went to the White House Wednesday to discuss the crisis with President Clinton, said it could be two years before consumers get rate relief.

``When we have that, deregulation may work,'' Davis said. ``But it's clearly not working now. It's an experiment that, at best, was prematurely launched in California.''

Earlier this month, federal regulators ordered an overhaul of California's electricity market in a push to control skyrocketing prices and curtail supply shortages that have pushed the nation's most populous state to the brink of blackouts.

SoCal Edison has asked a federal appeals court in Washington to force the Federal Energy Regulatory Commission to intervene to stabilize and lower wholesale prices by requiring sellers to set prices according to cost, not market demand. A response from FERC is expected by Tuesday.

©2000 Associated Press

-- Martin Thompson (mthom1927@aol.com), December 27, 2000

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Public: Freeze Power Rates

PUC begged to block utilities' electricity hike Jonathan Curiel and Louis Freedberg, Chronicle Staff Writers Wednesday, December 27, 2000 ©2000 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi? file=/chronicle/archive/2000/12/27/MN103026.DTL

In an emergency hearing that was raucous and crowded to capacity, the state Public Utilities Commission met today in San Francisco and heard speaker after speaker urge the body to maintain the freeze on electricity rates in California.

The PUC is considering whether to lift the freeze, so that Pacific Gas and Electric Co. and Southern California Edison can recoup some of their $8 billion in losses, which stem from soaring electricity costs and their inability to raise consumer rates.

"We should not be considering a rate increase," state Assemblyman Fred Keeley, who represents the Monterey area, told PUC members. "Consumers and ratepayers ought to be insulated (from the volatility) of the marketplace."

Keeley, the first speaker at today's public meeting attended by about 200 people, said PG&E and Southern California Edison could earn several billion dollars by selling their hydroelectric units to the state, which would operate them at cost.

Keeley asked the PUC to order the utility companies to immediately enter into negotiations with state officials.

The PUC is not expected to decide until Jan. 4 at the earliest. After listening to public comment today, commissioners will hear from PG&E and Southern California Edison tomorrow.

For now, the rate freeze is in effect until March 31, 2002, but analysts expect the PUC to approve a rate hike of 10 to 20 percent. With that in mind, one speaker today offered suggestions on how to shield poor people from the expected increase.

In prepared comments, Robert Kinosian of the Office of Ratepayer Advocates asked the PUC to increase the discount it gives to poor customers, from 15 percent to 30 percent. Kinosian also said that any increase should come in consumers' "non-baseline rates," meaning the rates above the initial, standard charges that consumers pay.

Under this approach, Kinosian said, "the rate increase will predominantly be felt by customers that use a larger-than-average share of electricity, and would target the demand that is most easily reduced though conservation and efficiency measures."

PUC commissioners said they would seriously consider every suggestion.

Loretta Lynch, president of the PUC, described the state's volatile market for electricity as "unprecedented. We recognize today that time is short."

Commissioner Carl Wood said that deregulation of the state's energy supply, which was expected to lower consumer prices, has demonstrated to "the lie of that premise. If consumers are not benefiting, then deregulation has lost any legitimacy."

Yesterday, to seek federal advice on how to avoid the collapse of California's public utility companies, Gov. Gray Davis flew to Washington for an unprecedented meeting with Federal Reserve Board Chairman Alan Greenspan.

The two-hour meeting was also attended by Treasury Secretary Lawrence Summers, an indication of the deepening concern over the potential effect on the national economy of California's power crisis.

"They agreed it was one of the most intractable problems they have seen in the short term," Davis said after the meeting.

PG&E and Southern California Edison must come up with $2 billion in the next two months to pay off short-term debts. If the utilities default on their IOUs, that could lead to a default on their longer- term debts of $20 billion.

Davis said he did not ask Greenspan to intervene with the utility companies' creditors. "This was more of a situation where I explained the problem and sought their advice and guidance," he said. "There are no magic bullets. We just have to work our way through this problem."

Davis stayed an extra day in Washington and planned to meet with President Clinton on energy today.

Economists were puzzled about what, if anything, the Federal Reserve could do to help resolve the crisis.

"The Federal Reserve is clearly concerned about the economic slowdown going on in the United States . . . but it is difficult for me to see that it could play any official role in intervening in California's energy situation, or in the affairs of a private, nonfinancial institution," said Janet Yellen, an economist at the University of California at Berkeley's Haas School of Business.

Yellen was a member of the Board of Governors of the Federal Reserve System from 1994 to 1997, and then served as chairman of the president's Council of Economic Advisers until 1999.

To help pay off their debts, the utilities are seeking a rate increase of at least 20 percent, while state officials have been pushing for an increase of 10 percent.

Davis and other elected officials have expressed growing concerns that the two utilities might go bankrupt.

"If these companies do go bankrupt, and stop service, there is no one to pick it up," said Sen. Dianne Feinstein, D-Calif., after a meeting with Davis and Energy Secretary Bill Richardson in Washington last week. "In addition, these are companies that employ hundreds of thousands of people throughout the state, so it could have a very dramatic ripple effect on the economy."

At that same meeting, Davis said the utilities were "more victim than culprit in this situation . . . "

The Federal Reserve has been reluctant to get involved directly in financial crises, even in ones that threatened to cause chaos in financial markets. But it has helped to restructure failing banks or other financial institutions.

In July 1998, the Federal Reserve Bank of New York brought together a group of lenders who came up with a $3.6 billion bailout package of Long-Term Capital Management, a teetering hedge fund that threatened to shake world financial markets.

It is conceivable that the Federal Reserve might play a similar role in coming up with a bailout plan for California's utilities. But insiders say Greenspan was unhappy with the New York Federal Reserve for getting involved in Long-Term Capital Management and is likely to be even more reluctant to meddle in California's utility crisis.

E-mail Jonathan Curiel at jcuriel@sfchronicle.com and Louis Freedberg at lfreedberg@sfchronicle.com

-- Martin Thompson (mthom1927@aol.com), December 27, 2000.