Calif DWR Seen Asking PUC To Order 25% Rate Increase Friday Friday, July 13, 2001 06:00 AM ET

Of DOW JONES NEWSWIRES

LOS ANGELES -(Dow Jones)- The California Department of Water Resources, the agency purchasing a bulk of the state's power needs in lieu of the three investor-owned utilities, is expected to tell state regulators Friday that they need to increase electricity rates by as much as 25%.

This is because there are insufficient funds in the current revenue stream to cover a $13.4 billion bond sale, three commissioners with the Public Utilities Commission told Dow Jones Newswires late Thursday.

PUC President Loretta Lynch is expected to issue a draft decision Friday either endorsing the rate hike request or calling for an audit of the DWR's current revenue stream before she makes a decision, aides in her office said.

If the PUC determines that there are not enough funds in the current rate structure to cover the bond sale, it will have no choice but to order the rate increase, according to the legislation that put the state in the power buying business.

Businesses are expected to bear most of the burden of the rate increase, the second in just two months, if approved by the PUC, the commissioners said.

"Back in May when we ordered the first rate increase, we said we may be forced to do it again by the summer," one commissioner said.

"It's unfortunate, but it shouldn't be a shock to anyone. The state has made an enormous commitment to Wall Street that rates would go up whenever it's needed to ensure there is enough money to pay off those bonds."

Lynch and a spokesman for the DWR were unavailable for comment late Thursday.

Separately, Assembly Speaker Pro Tem Fred Keeley, D-Boulder Creek, has drafted a proposal expected to be introduced into the Assembly Friday or Saturday that would have large businesses using the most electricity to finance the bulk of the $43 billion in long-term power supply contracts, aides in his office said.

Moreover, Keeley's plan is aimed at reducing rates for consumers who use the least amount of power. Details of the plan are still sketchy, aides said.

Possible Rate Hike To Generate $2.5B Yearly For State

The 50% rate increase ordered in May is expected to generate $5 billion annually, and if the PUC orders a 25% increase, that is expected to generate $ 2.5 billion. However, it is still unclear if that is enough, the commissioners said.

Businesses are expected to bear most of the burden of the rate increase, the second in four months, if approved by the PUC, the three commissioners said.

Since January, the state has spent nearly $8.5 billion buying electricity on behalf of customers of Edison International (EIX, news) (EIX) unit Southern California Edison, Sempra Energy (SRE, news) (SRE) unit San Diego Gas & Electric and PG&E Corp. (PCG) unit Pacific Gas & Electric.

The state has borrowed more than $7 billion from its general fund, which must be repaid by ratepayers at 6% interest, to purchase power.

In addition, the state has locked itself into $43 billion in long-term power supply contracts at high prices for as much as 20 years to ensure there is enough power to meet demand. Future rate increases to finance the contracts are likely, state officials have said.

But if the PUC orders another rate increase, the money won't benefit the utilities, which have billions of dollars in power costs to recover. Instead, it will be used to guarantee Wall Street financial institutions that there is sufficient funds in the rate structure to allow $13.4 billion in revenue bonds to be sold.

The bonds are expected to be sold in August or September, said state Treasurer Phil Angelides.

The commissioners said the PUC and the DWR waited to address another rate hike to see if state officials and generators were successful in coming to terms on $ 8.9 billion the state says it was overcharged for power since last year.

After two weeks of hearings between generators and a delegation of California utility executives and energy officials, talks broke down Monday. Generators offered the state $716 million in refunds, but Gov. Gray Davis balked, threatening to sue to recover the full $8.9 billion.

Any refunds would have been disbursed to the utilities and the DWR, which could have deferred the need for any rate increase, according to Steve Maviglio, press secretary to Davis.

An administrative law judge with the Federal Energy Regulatory Commission said Thursday he will recommend that the commission not order cash refunds to California because the state's utilities owe far more money to the generators than what he thinks the state is owed.

-By Jason Leopold; Dow Jones Newswires; 323-658-3874; jason.leopold@ dowjones.com

(This story was originally published by Dow Jones Newswires)

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-- Martin Thompson (mthom1927@aol.com), July 13, 2001