Power Hogs May Get Hit In Pocketbook Davis favors tiered rate increases

David Lazarus, Chronicle Staff Writer Sunday, March 25, 2001 ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/25/MN30195.DTL

Gov. Gray Davis, faced with the near inevitability of raising consumers' electricity bills, is leaning toward a rate system whereby those who use more power pay more than those who conserve, The Chronicle has learned.

Sources close to the governor said he is being lobbied by his own staff members to accept a so-called structured rate system.

Top officials from his own administration told lawmakers Friday that the state may end up spending more than twice the $10 billion previously estimated to purchase power on behalf of California's near-bankrupt utilities.

If so, the officials warned that consumers' electricity rates could double. In the case of Pacific Gas and Electric Co., this would mean customers' average monthly power bills would rise from $60 to $120.

Consumers throughout the Bay Area believe that at least some increase is on the way.

"We're going to have to bite the bullet and pay the money," said Larry Webster, a retired Caltrans worker in Redwood City. "We might as well admit that electricity is no longer a nickel. It's a dime. If you're going to use it, let's pay for it."

Steve Maviglio, a spokesman for the governor, distanced himself yesterday from estimates that rates would double. The figures reported in the press, he said, "were wildly high."

"The governor still believes he can live within the existing rate structure, " Maviglio said. "Until we know the results of the negotiations with the utilities, you can't conclude anything."

The state is negotiating a multibillion-dollar bailout package with PG&E and Southern California Edison Co. to relieve the utilities of about $13 billion in debt.

PG&E and Edison have been saying for months that there is no way California can overcome its current energy woes without higher rates. The irony of the Davis administration now saying the same thing was not lost on the two companies.

"The state is in the exact same position the utilities were in last fall," said John Nelson, a PG&E spokesman. "Either wholesale prices need to come down or retail prices need to go up. The disparity is too large."

Statewide blackouts last week drove home the precariousness of California's energy situation to ratepayers -- and may have served as a blessing in disguise for the governor.

COST VS. OUTAGES If given a choice between further outages and paying higher rates, many consumers said they would accept increases in their power bills.

"I don't like either choice," said Janet Leroux, facing the possibility of a gooey mess if the air conditioning goes out at her downtown San Francisco candy store. "But I guess I'd go with higher rates. I sure didn't like the blackouts."

Publicly, the governor has been insisting for weeks that rates will stay within "the existing rate structure" -- a stealthy way of saying that January's 9 percent increase and an expected 10 percent increase next year will remain in place.

But privately, he and his staff are discussing additional rate increases that could be spread over as long as 10 years, sources said.

Utility executives and power generators told The Chronicle last week that a minimum 30 percent rate increase lasting up to a decade is in the cards.

"For the good of California, it's inevitable," said Gary Ackerman, executive director of the Western Power Trading Forum, a Menlo Park energy industry association.

Sacramento resident John Hax observed that when temperatures soar in the Central Valley this summer, he'd be more than willing to pay a higher price for power if this keeps the air conditioners on.

"It's like gasoline," he said. "I don't like paying higher prices for gasoline, but that's the price of doing business."

Ratepayers draw the line, though, at any increase topping 10 or 20 percent.

"If it was 20 percent, I'd probably do it," said Tracy resident Mark Dougherty. "But if it was more, like 50 percent, I'd rather go with rolling blackouts."

"I'd rather have blackouts," agreed Jenny Soghomonian, owner of a shoe- repair shop in San Francisco's Financial District. "I don't want to pay rates that are so much higher."

NOT EVERY COST PALATABLE This is the tightrope that state officials and industry players now find themselves walking: While consumers may be willing to pay more to avoid blackouts, they aren't willing to swallow virtually any cost thrown their way.

Yet if rates are not high enough, they may not prevent daily blackout threats this summer and beyond.

"Higher rates are the price signal that it takes for conservation," said Tom Higgins, senior vice president of Edison International, parent company of Southern California Edison.

Simply put, he meant that most consumers will not aggressively conserve power, and thus alleviate shortages, unless there is a financial incentive to do so.

Rebates proposed by the governor have met with only a lukewarm response, requiring, critics say, too much effort on the part of individual ratepayers.

But a sudden spike in monthly power bills almost certainly would prompt widespread conservation measures.

"It adjusts consumer behavior," Higgins said. "People want to get their bills back down."

RATES' EFFECT ON USAGE He and other industry sources said higher rates are perhaps the only way Californians will achieve the 10 percent conservation goal sought by the governor -- a move seen as vital if blackouts are to be avoided this summer.

"It's intellectually dishonest to think there's any other way out of this," Higgins said.

Consumer activists' initial reaction to any talk of a rate increase comes across loud and clear: No, no, no.

"No bailout. No rate increases. No secret deals," said Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights in Santa Monica. "We need to get back to a regulated system."

Rosenfield is the biggest fly in the governor's ointment. He has threatened to push through a ballot initiative re-regulating California's power market if Davis cannot find a consumer-friendly way out of the current fix.

Because of Rosenfield's past success in writing a ballot measure on insurance rebates, which delivered about $800 million to consumers, his threat is taken seriously in Sacramento.

"We've paid too much already," Rosenfield said. "A fair price is what we were promised by deregulation, which was a 20 percent rate decrease."

However, when he was asked whether there was any room to discuss a structured rate increase such as the idea being promoted by the governor's staff, Rosenfield toned down his characteristic rhetoric.

"Big users should pay more," he said after a moment's reflection. "I'm open to a tiered system but only if it's fair."

Rosenfield quickly added that he would have to see how other consumer advocates felt about the matter before agreeing to negotiate such things with Davis.

MOVE TOWARD STRUCTURED RATES Clearly, though, momentum is building toward a system of structured power rates, which probably would include increases of varying sizes for consumers.

The California Public Utilities Commission is scheduled to address January's 9 percent rate increase on Tuesday. That increase originally was given only a three-month duration, but most observers expect it to be renewed for at least another three months, if not longer.

PUC President Loretta Lynch declined to comment on the likelihood of rates going up but added her voice to those backing a structured system.

"I am a fan of restructuring rates to exempt conservation," she said. "People who use a whole lot of power should pay more."

The biggest electricity customer in the state is the state itself, now that California is purchasing power on behalf of its cash-poor utilities. The state already has spent about $4 billion buying electricity and has yet to determine how the cash will be recouped from consumers.

San Francisco resident Rosita Magee accepts that for California to find its energy footing once more, rates will probably be heading up. "That way, you have more convenience and electricity, more stability," she said.

But Magee has come up with another solution, one that doesn't involve rate increases and rolling blackouts.

She's moving to Texas.

Chronicle staff writers Matthew Stannard and Pia Sarkar contributed to this report. / E-mail David Lazarus at dlazarus@sfchronicle.com.

-- Martin Thompson (mthom1927@aol.com), March 25, 2001