California PUC adopts rates, but legislature could act
As expected, the California Public Utilities Commission Thursday adopted temporary rate increases which Southern California Edison Co. and Pacific Gas & Electric Co. said are insufficient to cover the cost of purchasing wholesale electricity. But share prices of the utilities�which had been sinking all day�turned around after PUC Pres. Loretta Lynch said the California Legislature might consider legislation allowing the companies to securitize existing liabilities.
As expected, the California Public Utilities Commission Thursday adopted temporary rate increases which Southern California Edison Co. and Pacific Gas & Electric Co. said are insufficient to cover the cost of purchasing wholesale electricity.
Consumers criticized the decision to raise rates during the Thursday hearing, and Commissioner Carl Wood said, "We are voting the epitaph for deregulation in California today."
But share prices of the utilities�which had been sinking all day�turned around after PUC Pres. Loretta Lynch said the California Legislature, which is meeting in special session, might consider legislation that will allow the companies to securitize existing liabilities. Together, the investor-owned utilities claim to have lost $9 billion during the past year. They are operating under a rate freeze established as part of California's deregulation law that prevents them from passing the full amount to their retail customers.
By approving rate hikes of 7-15%, when the utilities sought increases of 26-30%, the PUC appeared to have set the stage for a downgrade in PG&E and Southern California Edison's bond ratings by credit ratings agencies.
Fitch Inc., Moody's, and Standard & Poor's all warned they would take action, if the increase was insufficient to halt a cash drain. Earlier Thursday, Fitch said it would act on the ratings after the PUC issued a final decision.
But the market perked up on the possibility of a legislative rescue. After plunging to an all-time low of 8 7/8 early in the day, shares of PG&E Corp. were trading at 11 7/8 at mid-afternoon. Edison International, Southern California Edison's parent company, hit an all time low of 6 1/4 on the New York Stock Exchange before staging a recovery to 10 11/26.
Robert Glynn Jr., chairman, CEO, and president of PG&E said: "This action ... should give us breathing room to allow the governor and the legislature to address the problem. This is the most substantive action we have seen in months on this crisis. Initial reaction by the financial markets to this modified order has been positive."
Glynn said, "The tone, as well as the content of the order, should provide adequate assurance to our lenders and suppliers that a solution to the problem is in the making and that they should continue to work with us while this solution is being finalized.''
Glynn noted that the commission removed some, but not all of the retroactive accounting changes designed to artificially extend the rate freeze. "While we are still troubled by aspects of the decision that are not consistent with the law, we are encouraged that the commission will finally hold hearings on the end of the rate freeze issue.''
Robert L. Christensen Jr., an energy analyst with FAC/Equities, said legislative action should be good news for the utilities and for the independent power producers and natural gas producers who sell energy in California.
While some observers called for allowing the utilities to go into bankruptcy, Wood said the potential for blackouts "is very real." And, he said, it would be a mistake to give control of two of the state's biggest utilities over to a bankruptcy judge.
Commissioner Richard Bilas said the California Legislature should establish a California Power Authority with condemnation authority "so those people who are grinding the system to a halt can be held accountable."
Use native load
But Commissioner Henry Duque criticized the commission for failing to put in place rules that will allow the utilities to use power plants they still own to serve native load as recommended by the Federal Energy Regulatory Commission.
"This has been held up several times," he said, after being placed on the commission docket. Duque said it will now be up to the legislature to insure California has adequate power supplies and utilities use bilateral contracts instead of relying entirely on the spot market to buy electricity. He also recommended the legislature require installation of time-of-use meters so Californians will get correct price signals.
In addition to confirming its proposed rate increase, the PUC made some changes to the order it proposed Wednesday. Over strenuous objections from a Southern California Edison representative who called the idea "illegal," the commission had proposed requiring the utilities to use billions of dollars they have collected in an account to pay off stranded costs to help pay for wholesale power costs instead. So-called stranded costs reflect the utilities' past investment in power plants that would be money losers in the deregulated market.
A spokesman for Southern California Edison said the company is "happy" with the commission's Thursday decision not to include the proposal in its final order. Separately, the PUC voted to increase by $3.5 billion the amount of debt the company can issue to finance future wholesale electric power purchases.