Kate Thomas
OGJ Online
The California Public Utilities Commission Wednesday proposed giving Pacific Gas & Electric Co. and Southern California Edison Co. a 90-day rate surcharge of 7-15%, far less than the 26% and 30%, respectively, the two companies sought to stave off a threatened financial meltdown.
The surcharge is meant to cover the utilities' cost of buying wholesale power. The commission will continue to conduct hearings on the financial positions of the utilities and will consider actions taken by a special state legislative session set to meet beginning Wednesday.
Reacting to the proposal, financial analysts said the proposed rate increases are not enough. Robert L. Christensen, Jr., an energy analyst with FAC/Equities, New York, called the interim rate increase "grossly inadequate," potentially pushing the utilities "closer to bankruptcy. Ideally we wanted 30-40% rate hikes for power and we wanted them to stick "
He said the possibility of a Chapter 11 reorganization filing by the utilities will put electricity traders and wholesalers at risk who potentially could have uncollectible receivables.
The two utilities say they have lost more than $8 billion in recent months because of soaring wholesale prices for electricity, and a state-imposed rate freeze that prevents them from passing the higher costs on to their customers. Credit rating agencies have threatened to downgrade their bonds to "junk" status, raising their cost of borrowing.
Under the draft order, which the PUC is expected to act on Thursday, residential customers' rates will rise 9%. Rates will rise 7% for small businesses, 12% for medium business customers, and 15% for industrial users.
During hearings Wednesday, Henry Weismann, an attorney representing Southern California Edison (Edison), a unit of Edison International, said the increase will not be enough to reassure the company's bankers, and, in the most explosive testimony of the day, asked the commission "to relieve Southern California Edison of the obligation to serve" customers under California law.
"This will mean someone else�perhaps the state�will have to assume responsibility of procuring power in our service territory," he said.
Under its draft order, PUC also:
� Found the rate freeze has not ended as the utilities claimed.
� Ordered PG&E and Edison to credit funds collected in so-called generation memorandum accounts as of Dec. 31, 2000 to the undercollections accrued in the Transition Revenue Accounts (TRA) rather than to the Transition Cost Balancing Account (TCBA). The order is intended to help offset the company's unpaid wholesale power purchases.
As of Nov. 30, 2000, PG&E's generation memorandum accounts contained excess revenues of $1.1 billion. Similarly, Edison's generation memorandum accounts contained excess revenues of $1.3 billion.
� Set a Jan. 10 hearing to begin to consider other issues and to establish a timetable to consider the reports of independent auditors hired in December to examine the utilities' books. In the next phases, the commission will consider the utilities' cost-cutting efforts; their efforts to pursue remedies at the Federal Energy Regulatory Commission (FERC) or courts reviewing FERC; lawsuits against generators or marketers of electricity and natural gas; whether and how holding company assets or guarantees should be applied to utility power procurement requirements; rate design issues, and additional discounts for low income consumers.
In his testimony, Weissmann called the commission proposal to use funds set aside to pay stranded costs to pay for purchased electric power "unlawful" and a "violation of due process." He said California's restructuring law required the money to go first to pay for stranded costs, while excess revenue could then be applied to generation cost when the rate freeze ends.
Consumer groups and a spokesman for Enron Corp. disputed his interpretation. Weissman's argument "turns the law on its head," said Mike Gray, speaking for Enron.
Commissioners said they were "very troubled" by the utilities' assumption that ratepayers must bear the burden of significant rate increases without the shareholders sharing in the pain. They noted utilities and their shareholders have received significant financial benefit from restructuring thus far.
For example, the commission said, PG&E and Edison have each received the benefit of over $2 billion in cash proceeds from rate reduction bonds. PG&E has received over $9 billion in headroom and other transition cost revenues and Edison has received over $7 billion in such revenues.
Disbursements from PG&E to the parent company, PG&E Corporation (PG&E Corp.) were approximately $9.6 billion, the commission said. Out of this total, PG&E Corp. issued dividends of $1.5 billion. PG&E also repurchased $2.8 billion of stock $2.8 billion of debt.