California PUC opens door to rate increase

Ann de Rouffignac
OGJ Online

HOUSTON, Mar. 9�The California Public Utility Commission opened the door to a retail electric rate increase at its Wednesday meeting, calling the apparent extra charge a �California Procurement Adjustment (CPA).�

Final documents passed by unanimous vote will not be available to the public until later Friday.

The commission voted to �approve and impose either as part of the CPA or as additional rates, rates sufficient to enable [Department of Water Resources] DWR to recover its revenue requirements on a timely basis.�

The DWR has been buying power on the spot market to meet demand over and above power supplied by the Pacific Gas & Electric Co. and Southern California Edison Co. since Jan. 17. Sources close to the energy crisis in California say the DWR has been spending close to $50 million/day on power.

Other than an initial $400 million appropriation by the legislature, the DWR has had no additional funding since to buy power. According to a Mar. 5 letter to the commission, DWR is in the process of obtaining interim financing for all or a portion of its power purchase costs. Meanwhile, without revenue, the negotiating position of the DWR is not as strong as it could be.

DWR asked the commission to insure revenue will be adequate to cover its power purchases through additional rates or from money collected by the utilities through existing rates. It said a clear source of funding is essential to negotiate power contracts more efficiently with suppliers. In correspondence with the commission, the DWR asked for access to money collected by utilities that corresponds to the power it provides.

Revenue critical
�The power being purchased by the Department [DWR] has been and is being delivered to retail end use customers. Revenues, relating to such power, are the property of the Department. They will have been or will very shortly begin to be collected by the electrical corporations. Such revenues are a critical source of funding for the power purchases,� stated Thomas Hannigan, director of the DWR in a Feb. 16 letter to the commission.

The commission would not comment beyond what was stated on the documents available from Wednesday's meeting. Sources close to California energy crisis issues, say that rates could increase 10% now and an additional 10% �later.�

The commission also decided the power contracts arranged by DWR would not be subject to future �prudency reviews� and DWR is solely responsible for setting its own revenue requirement. If the commission action does translate into higher electricity bills for consumers that would be an abrupt change to Gov. Gray Davis's position against higher rates. Davis has steadfastly maintained opposition to increasing rates since the energy crisis began.

The state�s two largest utilities are on the brink of bankruptcy because retail rates are frozen and their revenue is insufficient to cover the cost of skyrocketing wholesale power costs. The utilities have repeatedly asked for permanent rate increases which have been denied by the commission.

When merchant power producers shied away from selling to the utilities, state legislation authorized the DWR to buy power on their behalf. The DWR buys a portion of the power required to serve load beyond what the utilities can self-supply, the so-called �net short.�