California PUC delays rake hike decision

Kate Thomas
OGJ Online

Disappointing the market, the California Public Utilities Commission Thursday delayed a decision on raising electricity rates of customers of Pacific Gas & Electric Co. and Southern California Edison Co. and instead set Dec. 27-28 public hearings on the issue.

In a draft order, commissioners said they believed retail rates in California must begin to rise and said they will issue an order Jan. 4, after taking public comments. But they gave no hint of what might be considered "just and reasonable" under California law.

Stocks of the parent companies, PG&E Corp. and Edison International, fell sharply. Shares of Edison International closed at 14 15/16, down 2 15/16. At mid-day, the stock was off 3 3/8. The stock is down from $30 in February.

PG&E closed at 18 1/4, down 2 11/16. Earlier, it hit 17 1/6, a drop of 18.5%, its lowest price since before 1990.

Standard & Poor�s Wednesday threatened to lower the credit ratings of Pacific Gas & Electric Co. and Southern California Edison Co. to junk bond status, if California state or federal officials did not take �drastic� action that will improve the liquidity of those companies immediately.

�If no action is taken, the ratings will fall deeply into speculative grade to reflect imminent default,� said Richard Cortright, director of utilities at S&P, on a Wednesday conference call.

The companies have been accumulating substantial debt to pay for wholesale power that has skyrocketed in price because of flawed wholesale market conditions, scarcity of generation, and rising demand for power. The unrecovered balances have mounted to $4.5 billion for Pacific Gas & Electric and $2.6 billion for Southern California Edison Co., according to S&P. Because the utilities are under a rate freeze, they can't pass on the full cost of wholesale power to retail customers.

"It is our intent to maintain the utilities' access to capital on reasonable terms," the PUC said in the draft order. The commissioners said they recognize they have a duty to avoid continuing conditions that may jeopardize the utilities' creditworthiness and their ability to buy electricity on behalf of customers.

The PUC blamed the Federal Energy Regulatory Commission (FERC) for much of California's energy problems.

"We recognize that this will require that we act expeditiously to address the new FERC-imposed reality of unlimited wholesale prices," the PUC said. It claimed utilities' difficulties have been worsened by the Dec. 8 and 15 FERC orders that removed a $250/Mw-hr cap at the request of the California Independent System Operator, pushing the "resources of California's investor-owned utilities to the breaking point."

The PUC said it will resist the "demand to impose unjust and unreasonable charges." It ordered an independent audit of the books and records of PG&E and Edison, assessing their claims, the revenues and costs accrued by the utilities, their affiliates, and parent companies during the rate freeze period.