San Diego Gas & Electric appeals for rate surcharge

San Diego Gas & Electric Co. Wednesday disclosed its undercollected power costs total $450 million and could top $1 billion by yearend, if it doesn't get relief from California regulators. The Sempra Energy unit is asking for a 2.3�/kw-hr surcharge beginning March 1, to help manage its undercollections. In a statement, the utility said the cost of buying wholesale energy continues to be significantly higher than what the company is authorized to charge customers.


San Diego Gas & Electric Co. (SDG&E) Wednesday disclosed its undercollected power costs total $450 million and could top $1 billion by yearend, if it doesn't get relief from California regulators.

The Sempra Energy unit is asking for a 2.3�/kw-hr surcharge beginning March 1, to help manage its undercollections. In a statement, the utility said the cost of buying wholesale energy continues to be significantly higher than what the company is authorized to charge customers under a law adopted this past summer.

SDG&E Pres. Debra L. Reed emphasized cash flow and access to capital markets is an ongoing issue for SDG&E and could adversely impact the company's ability to serve customers in the future.

In addition to the rate surcharge request, the utility said it will institute other measures to contain a financial crisis similar to the one that has engulfed Pacific Gas & Electric Co. and Southern California Edison Co. It has established $100 million cash-conservation program, including sales of nonessential property, containment of new hiring, reduction of outside contractors, and deferral of information-system and construction projects that do not affect the core reliability of electric service to customers.

While the company is not planning employee layoffs at this time, Reed said all expenses and activities not tied directly to the maintenance of essential services and safety will continue to be scrutinized and deferred, if possible.

SDG&E has also resumed bill-collection activities, which were suspended in July 2000 to help consumers manage higher energy costs. The company estimates the outstanding payments exceed $45 million.

To head off a consumer revolt, SDG&E's residential and small business electricity rates were capped at 6.5�/kw-hr retroactive to June 1, 2000, after prices skyrocketed this summer. Under California's deregulation law, SDG&E was the first investor-owned utility in the state to pay off its stranded costs, leaving the company free to pass along the full cost of its wholesale power purchases.

Growing imbalance
State law AB 265, passed last summer, which does not apply to California's two other major investor-owned electric utilities, allows SDG&E to recover its "prudently incurred" electric commodity costs.

Over the past 30 days, however, wholesale electricity prices in the state market have averaged a record 25�/kw-hr about seven times the level of a year ago, the company said. Under state law, the difference between the wholesale electricity costs and the capped retail commodity rate of 6.5�/kw-hr is being recorded in a regulatory balancing account, or "IOU," for later payment, subject to review by the California Public Utilities Commission.

SDG&E's said the balancing account, originally estimated to reach $800 million by the end of the legislatively mandated cap period, now is projected to total $1.45 billion in 2003. As a result, balloon payments will total nearly $800 for the typical residential customer.

Reed blamed the Federal Energy Regulatory Commission for refusing to address "the serious problems in California's dysfunctional wholesale power market" and the state for not keeping keeping pace with the sharp rise in wholesale electricity prices, which remain out of control and have far surpassed the record prices of last summer. Our customers have been paying only a small fraction of these power costs. The majority is being deferred into a growing 'balancing account'."

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