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Calif Controller:PUC Rate Hike Not Enough For State Buys

Updated: Wednesday, March 28, 2001 05:52 PM ET LOS ANGELES (Dow Jones)--California's state Controller said Wednesday that rate hike of 3 cents a kilowatt hour for two utilities still will leave the state with a 25% revenue shortfall for power purchases through June 2002.

"This (rate hike) amount won't cover the state's estimated ongoing purchases, even when long-term contracts take effect," said Controller Kathleen Connell at a press conference Wednesday.

Connell said she analyzed the state's cash-flow picture through June 2002, assuming that the state would receive 75% of the rate hike approved by the Public Utilities Commission on Tuesday.

The rate hike affects customers of Edison International's (EIX, news, msgs) Southern California Edison unit and PG&E Corp.'s (PCG, news, msgs) Pacific Gas & Electric Co. unit.

Connell said the state will see a cash flow deficit by October and will have to borrow money again, even assuming it gets 75% of the rate increase and that a $12.4 billion revenue bond issuance to fund power purchases goes through by June.

Her projected energy expenditures for the next 18 months is almost $26.8 billion. With estimated revenue from ratepayers of about $7 billion added to the maximum amount of bond financing of $12.4 billion, the state would see a deficit of $7.4 billion, she said.

Connell assumed in her analysis that the state would not purchase the two utilities' transmission assets for $9 billion, which would only worsen the state's financial picture, she said. Gov. Gray Davis' administration is currently in talks with the utilities about buying their transmission lines.

She also assumed the utilities would repay all purchases the state made on their behalf from January to June, Connell said.

Connell noted that the PUC still has not determined how much of the 3-cent/KWh rate increase will go the state's power-buying arm, the Department of Water Resources, for power purchases. The PUC is slated to vote on that issue April 3.

"The best-case scenario would be that the state receives the entire increase. That's a long-shot, and that would still not be enough to cover purchases through June 2002," Connell said.

Connell said her working assumption that the state would receive 75% of the rate increase was an optimistic estimate, given that utilities must pay for their own generation costs and power buys from ratepayer revenue.

"We thought we were being a bit of a glutton asking for 75%, but even at that, we'll still have a 25% shortfall. What we did was look at the daily spending patterns of the state and tried to factor in long-term contracts to the extent that we understand them, then added in estimated revenues from the PUC increase," Connell said.

Connell said the CDWR's refusal Monday to allow her to audit its books made it difficult to determine the state's cash-flow picture.

"We based our information on the best Street knowledge, so our analysis may be a little rough on the numbers. We'd be more than happy for the DWR to clarify them for us," Connell said.

Connell also said Davis' administration had to come up with a more complete financial plan to ensure the state had enough money to buy power, and emphasized that transparency in power purchases would help clarify the state's financial picture. Davis has refused to provide details of the state's power buys, saying it will drive wholesale power prices higher.

"There's an extraordinary amount of exposure for the state ... it's imperative that we begin to open up the books so the right hand knows what the left hand is doing," Connell said.

-By Jessica Berthold, Dow Jones Newswires; 323-658-3872; jessica.berthold@dowjones.com

http://quicken.excite.com/investments/news_center/article/printer.dcg?story=/news/stories/dj/20010328/BT20010328005967.htm

-- Martin Thompson (mthom1927@aol.com), March 28, 2001