Plan for power lines could raise rates

It may bump an average monthly Edison bill from December's $63 to more than $88, an advocate says.

March 9, 2001

By JOHN HOWARD The Orange County Register

SACRAMENTO Californians' electricity bills could climb 15 percent beyond the back-to-back increases already facing ratepayers as a result of the state's plan to buy transmission lines and power, a consumer group says.

That's because the proposal's real cost will be far higher than its roughly $17 billion price tag, to be financed this spring by the sale of revenue bonds. The state intends to borrow $10 billion to purchase the power and, in a separate deal, perhaps up to $7 billion to buy the lines. With interest, the final cost could be $21 billion or more.

The bottom line from a leading ratepayer advocate: The average monthly Edison bill, about $63 in December, will be at least $88 when the state is done dealing.

How it would get there:

Southern California Edison's residential customers now have an average monthly electric bill of just under $70, reflecting a 9 percent increase ordered in January by the Public Utilities Commission. Another 10 percent hike is likely next March, which could boost the average Edison bill to $77.

Beyond those two increases, the bond proposals could boost rates "by another 15 percent, and that's a conservative estimate," said Doug Heller of the Foundation for Taxpayer and Consumer Rights. That increase would affect residences, small businesses and small farms, he said, citing a draft Foundation study.

Gov. Gray Davis has said it is his "hope and expectation" that rates won't be raised further. "It is the governor's feeling that they (power purchases) can be done within the existing rate structure," said Davis spokesman Steve Maviglio.

But Harry Snyder of the Consumers Union of Northern California countered: "How can you double the cost of energy and not have rates go up? It's crazy."

Many factors

A rate hike also might stem from the state's purchase of transmission lines. If that deal exceeds $6.3 billion, state Treasurer Phil Angelides said, a rate increase could occur. He didn't say how much.

Borrowing to acquire the transmission lines, however, is more routine than buying power.

"There is a tangible asset," Angelides said of the lines. "That is something the bond market understands."

Buying raw power on credit is harder.

"Ten billion (dollars) in bonds (to buy power) is do- able, but when you begin to move beyond that, it's more difficult.

The bigger you make the bond, the more you pay. There is a size premium. It pushes up our interest rate."

An estimate at the legislative analyst's office says the $10 billion for power alone would cost $14 billion over 10 years, reflecting $400 million annually in debt service.

Heller's group believes that that price tag actually would be at least $17 billion, and several Capitol estimates range from $15 billion to $20 billion or more.

'Untested waters'

Angelides offered smaller numbers. He said issuing $10 billion in mostly tax-exempt bonds would cost $13 billion over 12 years at 5.45 percent interest.

If federal authorities reject tax exemptions, the payback could be $14 billion.

He did not estimate the payback on the $7 billion bond for the transmission lines.

But at 8 percent interest, a likely figure on a taxable bond, the total payback could reach $8.5 billion.

"These are untested waters," said state Controller Kathleen Connell, an investment banker.

Another factor indirectly related to bond financing that could affect rates is a PUC decision Wednesday to allow the state to recoup $3 billion in emergency power purchases through rate hikes.

Whether the state will do so is unclear.

For at least one customer, there's fear that the state may not be competent to finance and operate a power system.

"The problem is that the state is not in the electricity business. State bureaucrats are getting into the power business, and I question that. They really need to listen to people who are experts from the power companies," said Mike Kanda, a spokesman for Textron Aerospace Fasteners of Santa Ana.

http://www.ocregister.com/news/energycost00306cci1.shtml

-- Martin Thompson (mthom1927@aol.com), March 09, 2001