California rate hike may not be enough

By the OGJ Online Staff

HOUSTON, Mar. 27�Southern California Edison Co. criticized a plan by California regulators to raise electricity rates as not "conducive" to restoring the creditworthiness of the state's utilities in the eyes of the financial community.

The California Public Utilities Commission Tuesday is scheduled to take up a proposed order to raise rates 24% on average or 3�/kw-hr. Lynch said the measure will generate about $2.5 billion/year in additional revenue for the utilities. In Southern California Edison's territory, consumers will pay 15.45�/kw-hr on average, after the rate increase.

While PUC Pres. Loretta Lynch's proposed decisions recognize the "absolute necessity" of addressing the disparity between very high wholesale power costs and frozen retail rates, Southern California Edison (SCE) said "substantial improvements will be needed."

Pacific Gas & Electric Co. said Friday that under its frozen rates, the company has been collecting $400 million/month for the purchase of electric power. The utility said its average combined energy bills from various sources exceeds $1.4 billion a month, and may go even higher in the coming months.

Rate uncertainty
SCE said collection of increased revenues must be structured to insure costs will be fully recovered and will account for unknown future shifts in the costs of generation. Moreover, SCE said, the proposed retroactive change in the accounting rules dating back 3 years and governing the current market transition will only add to the complexity and uncertainty when the opposite is required to restore the confidence of the financial community.

Some of the revenue generated from the rate increase will be used to pay the California Department of Resources (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.

The final rate will be determined when regulators receive specific revenue requirement data from the DWR which is buying power on behalf of consumers.

The commission will also act on a measure 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 supplied 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.

Prior to Lynch's Monday announcement of the rate increase, Pacific Gas & Electric Co. said it will be forced to challenge the state's proposed decision to use the company's existing rate structure to begin fully paying QFs in advance, for future power purchases, starting Apr. 1, and to reimburse the DWR in advance of any other generating source, including utility-retained generation, bilateral contracts, QFs or the Independent System Operator.

"The numbers just don't work," said CEO Gordon Smith.