Published Tuesday, January 30, 2001

Deregulation benefited utility POWER CRISIS

An audit of Edison ordered by the PUC shows it made money until last year; a similar audit of PG&E is forthcoming

By Mike Taugher AND ANDREW LAMAR

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TIMES STAFF WRITERS

Despite being nearly broke because of skyrocketing wholesale electricity prices, one of California's two largest utilities made $4.8 billion overall since the state's electricity deregulation law was passed in 1996, according to an audit released Monday night.

The audit confirms in large part Southern California Edison's claims that it is rapidly running out of cash and unable to get loans to pay its bills. Edison has lost $4.5 billion since wholesale electricity prices shot up last summer.

"It looks like it validates what we've been saying all along," said Edison spokesman Steven Conroy. "It would be premature to comment further until we've had a chance to more fully review it."

But the audit also seems to confirm what consumer activists have been saying: that the utility has made a lot of money overall during the state's venture into electricity deregulation.

"This report indicates what we have known for some time: Edison has made a lot of money in deregulation and lost some in the last six months but not near enough to justify a taxpayer bailout," said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights.

During the past five years, Edison paid about $4.8 billion to its parent company, Edison International, according to the report.

"Basically they took the money and ran," said Senate leader John Burton, D-San Francisco. "Had they not done that, they would not be in the financial problem they're in."

The audit, released Monday night by the California Public Utilities Commission, is one of two reports ordered by the commission to help it evaluate utilities' claims of financial distress and their insistence that immediate electricity rate increases of at least 30 percent are needed to save their companies.

A similar audit of the state's largest utility, Pacific Gas & Electric Co., was also due to be released Monday, but state officials said late in the day they had not yet received the report from auditors.

Lawmakers are expected to rely on the reports' findings to craft legislation that could bail the utilities out of their financial mess and determine who will pick up the tab: ratepayers, taxpayers or shareholders.

At stake is about $12.4 billion that the two utilities have already lost because of the high cost of wholesale electricity. Those losses have jeopardized the companies' ability to buy power and forced the state government into the electricity buying business.

Meanwhile, state officials also announced Monday that $400 million of taxpayer money used to buy electricity for the credit-strapped utilities was gone by late Sunday, forcing the Department of Water Resources to begin dipping into its budget to keep power flowing.

The state was spending nearly $40 million a day on electricity late last week, as the state watched its daily power bill rise during the 12 days it was buying power.

"We are now spending under the emergency authority of the governor," said water resources department spokesman Mike Sicilia. Asked how long the department could afford to buy electricity, Sicilia said, "We can't answer that question. We'll do what the governor wants us to do."

The governor also appointed a negotiating team Monday to discuss with the utilities what assets the state should receive in exchange for its investments in power.

"Governor Davis is committed to stabilizing and reinvigorating the public utilities so that they can get back in the business of keeping the lights on for Californians," Davis' office said in a news release. "In exchange, the governor believes Californians must receive a substantial ownership interest in the utility companies."

Hydroelectric plants, stocks and transmission lines have all been discussed as assets that the state might take in exchange for its investments.

The utilities have been caught between skyrocketing wholesale electricity prices and retail rates that have been held at levels that pay for only a fraction of their costs to buy power.

In PG&E's case, the utility can bill its customers 5.4 cents for every kilowatt-hour they use. Through April 2000, that covered the wholesale cost and left change in the utilities' pocket.

But in May, the utilities' average wholesale cost crept to 6.1 cents per kilowatt-hour, the first time the wholesale cost was higher than what the utility could collect from its customers.

Then the market went haywire. Last month, the utility's average price was close to 30 cents per kilowatt-hour.

PG&E said because of this, it has lost $7.9 billion since last May. Ratepayers, the company said, are responsible for reimbursing the company for those losses.

Edison has put its losses through the end of last year at about $4.5 billion.

Although Edison's auditors agreed that the account set up by the PUC to track Edison's income was $4.5 billion in the hole, they added that that figure is "overstated" because of the accounting mechanisms that were set up by the PUC.

The PUC ordered the audits last month after the utilities asked for 30 percent rate increases. The PUC, skeptical of the utilities' claims, gave them only about one-third of that amount.

"We are very troubled by the utilities' assumption that ratepayers must bear the burden of significant rate increases without the shareholders sharing in the pain," the PUC commissioners wrote Jan. 4.

"The utilities and their shareholders have received significant financial benefit from restructuring thus far," the commissioners added.

Associated Press contributed to this story.

http://www.contracostatimes.com/news/topstory/energy_20010130.htm

-- Martin Thompson (mthom1927@aol.com), January 30, 2001