California regulators propose 24% hike in consumer rates

By Ann de Rouffignac
OGJ Online

HOUSTON, Mar. 26�With state expenditures on power threatening to spiral out of control, California Public Utilities Commission Pres. Loretta Lynch Monday proposed a 24% average retail electric rate increase.

After a months long standoff over an increase with electric power utilities, Lynch finally agreed rates will have to be hiked or the state's energy crisis will worsen. The near-bankrupt Southern California Edison Co. and Pacific Gas & Electric Co. owe $9 billion to their power suppliers. The state has already spent $4.6 billion to purchase power to supply the utilities' customers. With summer approaching and supply at risk, the PUC said it must act now.

In Southern California Edison's territory, consumers will pay 15.45�/kw-hr on average, after the rate increase.

�We recognize that that the utilities are in financial distress. To keep the lights on and pay our power bills, a rate increase is needed,� she said at a Monday press conference.

The rate proposal and other provisions will be on the agenda Tuesday and, if approved, will be effective immediately.

The consumer rate increase will average 3�/kw-hr. The 1�/kw-hr temporary rate increase approved in January will be made permanent, she said. The final rate will be determined when regulators receive specific revenue requirement data from the Department of Water Resources (DWR) which is buying power on behalf of consumers.

DWR must be repaid
Some of the revenue generated from the rate increase will be used to pay the DWR for purchases of power already made. The state needs to be paid to protect the general fund and to insure the state treasury can issue bonds to cover the power purchased by the DWR to cover the net short position of the utilities going forward.

But Lynch said it will be tiered rate structure with electricity �hogs� paying the most for electricity. Some consumers using less than what is considered the �baseline� for a particular locale will not receive a rate increase.

�But the more you use the more you pay,� Lynch said. �The tiered rate proposal will promote conservation.� Lynch also has proposed a full investigation of the utility holding companies to identify their part in the responsibility for the crisis.

The source of the rate increase is the cost of energy, Lynch said.

�Suppliers have us over a barrel in terms of energy prices. But we will have to pay the bills until their unjust and unreasonable prices are brought to heel,� she said.

The state of California has no authority over wholesale prices which are subject Federal Energy Regulatory Commission jurisdiction. Lynch also said she is hopeful that FERC will conclude that the wholesale prices in California are unfair and order refunds.

�We have waited long enough and our cries have fallen on deaf ears. I hope FERC sees the light and takes constructive action with California,� she said. �But until FERC gets off the dime, we are faced with a Hobson�s Choice or no alternative at this time.�

�This rate increase is subject to refund, if we can get those [wholesale] prices refunded,� she said.

Lynch also took steps to make sure qualifying facilities (QF), renewable energy and cogeneration facilities with special contracts to sell power to the utilities, keep producing electricity. The QFs have not been paid for power generated and provided to the utilities for several months. Almost half the QF capacity was off line recently because of financial difficulties. The California grid operator said their absence contributed to rolling blackouts last week.

To help insure reliability of the electric system, Lynch said the utilities will be ordered to pay the QFs or risk being fined. The specific formula has yet to be worked out but it will be linked to the cost of natural gas at the Malin trading point, plus an intrastate transportation charge, rather than compensation linked to natural gas prices at Topok which the PUC claims has distorted prices.

Contact Annd@OGJonline.com