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Contra Costa Times, Tues, 3/27: "Rate hike in the offing" Contra Costa Times, Tues, 3/27: "Power Rate Hike Reaction Mixed Sac Bee, Tues, 3/27: "State Proposeselectric rate hike: PUC suggests 30=20 percent average increase; industry hit hardest" Sac Bee, Tues, 3/27: "Cox new minority leader in GOP coup: Assembly=20 conservatives want to flex energy muscle" Sac Bee, Tues, 3/27: "Dan Walters: An absolutely incredible tale" Sac Bee, Tues, 3/27: "Daniel Weintraub: No crisis is big enough to slow=20 Davis' fund spree" San Diego Union, Mon, 3/26: "Energy woes give nuclear plants a life=20 San Diego Union, Mon, 3/26: "Top State Regulators Proposes 40 percent rate= =20 increase" San Diego Union, Mon, 3/26: "Supplier Duke offers to forego some charges" LA Times, Tues, 3/27: "PUC to Vote on Big Rate Hike; OK Is Likel" LA Times, Tues, 3/27: "Davis Ducks Reality on Electricity 'Overcharges' " = =20 (Commentary) SF Chronicle, Tues, 3/27: "PG&E Bills Set to Rise 40%=20 TIERED RATES: PUC meets today, expected to enact system penalizing heavy=20 users" SF Chronicle, Tues, 3/27: "Governor's Static Cling May Cost Him Politicall= y=20 Davis acts stunned at PUC's proposed rise in energy rates" SF Chronicle, Mon, 3/26: "Pleas for Warning Of Next Blackout=20 ISO to address customers' biggest gripe about outages" Mercury News, Mon, 3/26: "PUC set to give up on rate freeze; increases up = to=20 36% likely" Mercury News, Mon, 3/26: "Gov. Davis' hard line against higher rates is fu= el=20 for challengers" Mercury News, Mon, 3/26: "Consumer frustrations keeps pace with rate hikes= " Orange County, Tues, 3/27: "Seeing the light in energy crisis" (Commenta= ry) Orange County, Tues, 3/27: "Power rates may surge" Orange County, Tues, 3/27: "Senators struggle with PG&E rescue talks" Orange County, Tues, 3/27: "Resigned to Higher rates Business officials see little option, though product prices will likely go = up" ---------------------------------------------------------------------------= --- --------------------------------------------------------------------- Rate hike in the offing By Mike Taugher TIMES STAFF WRITER=20 SAN FRANCISCO -- An energy crisis that has already brought widespread power= =20 blackouts is now set to hit Californians' bank accounts with a large rate= =20 increase that is headed for approval today.=20 State regulators are weighing a 30 percent hike on electricity rates that= =20 would come on top of a smaller, temporary rate increase that was adopted in= =20 January. The temporary increase also is expected to be made permanent today= =20 by the Public Utilities Commission.=20 Still to be determined is the question of who will bear the brunt of the ra= te=20 increases, which are expected to appear on the May bills of California's 7.= 5=20 million utility customers.=20 Loretta Lynch, president of the Public Utilities Commission, said the rate= =20 increases are needed to replenish more than $4 billion in ongoing electrici= ty=20 purchases by the state treasury and allow utilities to continue to buy=20 electricity from alternative energy companies.=20 The rate increase also satisfies conditions that are needed before the stat= e=20 can borrow $10 billion or more to finance its power buys.=20 Lynch also said she will propose a tiered rate structure that would penaliz= e=20 those who use the most electricity and leave nearly half the state's utilit= y=20 customers, who use relatively little, untouched by the increase.=20 Seen as inevitable by many observers, the politically volatile issue of rat= e=20 hikes is nevertheless another admission that the state's foray into=20 electricity deregulation, which was supposed to lead to cheaper and more=20 plentiful electricity, has failed.=20 Consumer groups, calling the proposed rate hikes a $4.8 billion gift to=20 utilities, responded by saying they would hasten plans to take the state's= =20 energy mess to voters through a ballot initiative. Among their proposals:= =20 rolling back rates, forcing a state takeover of power plants or implementin= g=20 an excess profits tax on energy companies.=20 "The ratepayer revolt is under way," said Harvey Rosenfield, president of t= he=20 Foundation for Taxpayer and Consumer Rights. "The voters are going to have = to=20 take matters into their own hands at the ballot box. It will be a bloodbath= ."=20 Meanwhile, Gov. Gray Davis immediately distanced himself from the rate-hike= =20 proposal.=20 "The governor believes tiered pricing could promote the conservation=20 California needs if structured properly but was not convinced of that by th= e=20 data made available to him last week," according to a statement from Davis'= =20 office Monday. "He has asked for more information, which should be availabl= e=20 this week. The governor has not had conversations with any commissioners=20 about a potential rate hike. It is still his hope and expectation that this= =20 matter can be resolved within the existing rate structure."=20 Some observers were incredulous, noting Davis' reputation as a micromanager= =20 who keeps appointees on a short leash.=20 "The PUC has been run like his personal cabinet for a year and a half," sai= d=20 Gary Ackerman, director of the Western Power Trading Forum, a Menlo=20 Park-based association of electricity generators and traders. "This one's g= ot=20 me floored. The governor once again is a day late. The Oscars for best acto= r=20 were last night."=20 Confronted with teetering utilities, alternative energy companies that were= =20 refusing to sell power in the state and state coffers bleeding by about $50= =20 million a day, Lynch unveiled a set of four interwoven decisions that the= =20 commission is scheduled to vote on today.=20 The measures would:=20 Raise consumer rates by 3 cents per kilowatt-hour, and make permanent a 1= =20 cent temporary hike implemented in January. Before the January rate hike,= =20 Pacific Gas & Electric Co. customers paid a 9.4 cents per kilowatt-hour for= =20 electricity, 5.4 cents of which was earmarked for the utility's energy buys= .=20 If the hike is approved, those figures will rise to 13.4 cents per=20 kilowatt-hour on average, 9.4 cents of which will be used for electricity= =20 purchases.=20 Determine how much of that money will be used to reimburse the state=20 treasury, which has committed more than $4 billion to electricity purchases= =20 since mid-January. Lynch said Monday that although the state has not yet=20 submitted data on its power buys, she believes the proposed rate hike will= =20 fully reimburse state coffers.=20 Order the utilities to pay alternative energy companies, some of which have= =20 shut down operations because they are not getting paid. The order would app= ly=20 to buys already under contract but not to the $1.5 billion that the utiliti= es=20 owe for electricity already used.=20 Launch a PUC investigation into whether the utilities have improperly=20 sheltered profits in their holding companies and subsidiaries.=20 The proposals focus on the state's power buys and the utilities' upcoming= =20 power purchases and do nothing to address directly the mountain of debt tha= t=20 the utilities have accumulated. PG&E and Southern California Edison owe ban= ks=20 and energy companies billions.=20 "We're still going through the proposed decisions and would like to wait=20 until we have fully analyzed the material before we comment on it," said Ro= n=20 Low, a spokesman for PG&E.=20 By raising rates, state regulators would lessen the severity of blackouts= =20 this summer but would probably not prevent them entirely, according to=20 industry groups.=20 "In any circumstance, we're going to have a very difficult summer," said Ja= n=20 Smutny-Jones, director of the Independent Energy Producers Association. "It= 's=20 too early to say how sufficient it is, but it (the commission's willingness= =20 to raise rates) is an important recognition of reality."=20 Lynch acknowledged the measures will only partly address electricity=20 problems.=20 She called on federal regulators to impose regionwide caps on the wholesale= =20 electricity market and order more refunds when prices have been unreasonabl= y=20 high.=20 If the commission adopts the rate hike today, its next step will be to=20 determine who pays what portion.=20 Staff writer Matt Sebastian contributed to this story.=20 Mike Taugher covers the environment and energy. Reach him at 925-943-8324 o= r=20 mtaugher@cctimes.com.=20 ---------------------------------------------------------------------------= --- ------------------- Published Tuesday, March 27, 2001=20 Power rate hike reaction mixed Wall Street likes proposal, but local business leaders have some misgivings= =20 BY RICK JURGENS=20 TIMES STAFF WRITER=20 The electricity rate hike proposed Monday by the state's top utility=20 regulator elicited cheers on Wall Street, where the prices of California=20 utility stocks rose about 30 percent, but got a more cautious reaction from= =20 local business leaders.=20 "This is a regrettable necessity," said Justin Bradley, energy program=20 director for the Silicon Valley Manufacturing Group, a San Jose-based group= =20 of 190 technology employers.=20 A rate hike won't in itself solve the state's electricity crisis, said Bruc= e=20 Kern, executive director of the Economic Development Alliance for Business = in=20 Oakland. Reliability is the key business concern about electricity, and=20 restoring reliability will require more generating capacity and conservatio= n=20 assistance for companies, he said.=20 Despite a surge in wholesale electricity costs since April 2000, California= =20 regulators have allowed only a 9 percent increase in retail prices and Gov.= =20 Gray Davis has adamantly rejected calls for further rate hikes. But Public= =20 Utilities Commission President Loretta Lynch, a Davis appointee, signaled= =20 that the administration may be ready to retreat with a plan to hike the=20 average retail price by 3 cents a kilowatt hour. That would be a 46 percent= =20 increase over the current average rate in the PG&E service area of 6.4 cent= s=20 a kilowatt hour, excluding distribution and other costs not directly relate= d=20 to power procurement.=20 That didn't faze Allan Zaremberg, president of the California Chamber of=20 Commerce. "We have looked at it as inevitable for some time," he said of th= e=20 rate hike. Higher natural gas costs, along with the dry winter that reduced= =20 the availability of hydroelectric power throughout the West, were bound to= =20 boost retail bills, he said.=20 Bradley, speaking for tech manufacturers, said Lynch's plan promises to ste= m=20 the tide of state agency spending on electricity, direct some revenue towar= d=20 small generators and put some downward pressure on wholesale prices but is= =20 only one step toward a long-term solution. "We need an overall philosophy a= nd=20 strategy to restore normalcy to this market," he said.=20 Lynch, who described her offering as "merely a proposal to jumpstart the=20 public process of rate design," included as a "principle" plans to narrow t= he=20 gap between residential rates and those of industrial users, whose average= =20 bill now logs in at about 3 cents a kilowatt hour less. Lynch suggested tha= t=20 that differential be shaved by about a penny an hour.=20 That isn't the direction that Kern would like to see things move. "Our main= =20 concern would be that if there is a rate increase it be (done) equitably an= d=20 not disproportionately affect business in this region," he said. "We're=20 beginning to hear employers say, 'Maybe it's just too costly to do business= =20 here,'" he warned.=20 Higher electricity rates might force price increase and a cutback in=20 expansion plans at Helios Farms Nursery in Brentwood, which runs electric= =20 water pumps for up to eight hours a day during the summer. "It's too soon t= o=20 tell the affect" of the rate increase, said Maria Orfanos, one of the owner= s.=20 "We'll have to see what happens this summer. We need to water the plants."= =20 But rate hikes promise to remove the cloud of debt -- billions of dollars= =20 worth -- that now hovers over the utilities. The gap between high wholesale= =20 prices and fixed retail rates cost PG&E as much as $4.1 billion in after-ta= x=20 profits during 2000, the company said in a securities filing Monday. But th= at=20 didn't seem to bother investors, whose heavy buying made California utiliti= es=20 among the stock market's big gainers Monday. PG&E's stock closed at $13.75,= =20 up $3.10 or 29.1 percent, and Edison International, Southern California's= =20 largest electricity seller, closed at $14.55, up $3.35 or 29.9 percent.=20 Edison issued a late-day response to Lynch's move that seemed designed to= =20 dampen investors' enthusiasm. "A cursory review of the multiple complex=20 proposals suggests that substantial improvements will be needed if they are= =20 to fully align costs with rates and restore the creditworthiness of the=20 state's utilities in the eyes of the financial community," it said. Edison= =20 also called for the PUC to allow "flexibility to meet unknown future shifts= =20 in the costs of generation."=20 A PG&E spokesman said the company was still analyzing the "inch-thick stack= =20 of materials" and had no comment. An earlier PUC proposal to require the=20 utility to pay small generators would leave the utility with "insufficient= =20 revenues ... to recover the cost of its own generation" and to pay other=20 contracted generators, it said in its filing.=20 Kern, the EDAB chief, said he was encouraged by the state's plan to issue= =20 industrial revenue bonds to finance stand-by generators for businesses and = to=20 install energy-efficient lighting.=20 Staff writer Chris Metinko also contributed to this report. Rick Jurgens=20 covers economic developments and trends. Reach him at 925-943-8088 or at=20 rjurgens@cctimes.com.=20 ---------------------------------------------------------------------------= --- ------------------------------ State proposes electric rate hike: PUC suggests 30 percent average increase= ;=20 industry hit hardest=20 By Carrie Peyton and Dale Kasler Bee Staff Writers (Published March 27, 2001)=20 The wildfires sweeping California's electric market burned through to=20 consumers' wallets Monday, with a proposal that appeared virtually certain = to=20 boost overall rates roughly 30 percent.=20 Some customers, including households that use little electricity, could be= =20 spared entirely, while others, including some of the state's biggest=20 manufacturers, could see increases of close to 90 percent.=20 It would be the biggest rate increase in state history, and there is no=20 guarantee it would be enough to resolve California's electricity crisis,=20 state-funded ratepayer watchdogs said.=20 While Gov. Gray Davis sought to distance himself from the proposal, industr= y=20 observers said it stretched credulity to imagine his appointees to the stat= e=20 Public Utilities Commission would have gone against his wishes.=20 "Anyone who wants to claim this isn't part of his plan is going to fly in t= he=20 face of everything he's told us. It's just not likely," said Camden Collins= ,=20 a Bay Area energy consultant who has held high-level posts with the PUC and= =20 the state grid operator.=20 After a weekend marathon of last-minute calculations, the PUC issued a=20 wide-ranging, sometimes contradictory package of proposals Monday for=20 probable commission votes today.=20 In one of the biggest conflicts, a PUC administrative judge who oversaw rat= e=20 hearings urged no increase at all, while commission President Loretta Lynch= ,=20 who leads a Davis-picked PUC majority, urged a hike of 3 cents per=20 kilowatt-hour.=20 Other key proposals include:=20 Making permanent a temporary 9 percent - 1 cent per kilowatt-hour - rate hi= ke=20 imposed in January for customers of Pacific Gas and Electric Co. and Southe= rn=20 California Edison.=20 Starting immediate discussions on designing rates that would fall hardest o= n=20 the heaviest users, changes that could appear in May electric bills.=20 Revising the formula for paying alternative power producers, known as=20 "qualifying facilities," in a way that several said still wouldn't solve a= =20 simmering payment dispute.=20 Creating a formula for utilities to pay the state for electricity purchases= =20 made on their behalf since January, which appears to clear the way for the= =20 state to issue power purchase bonds.=20 Reclassifying past debts and expenses to sharply cut utilities' estimates o= f=20 their losses - a move sought by consumer groups.=20 Consumer groups blasted the proposal, investors welcomed it, and utilities= =20 were cautious, with PG&E declining immediate comment and Edison saying it= =20 still didn't go far enough. Generators and economists labeled it a good fir= st=20 step.=20 "We have unfortunately come to the conclusion that a rate increase is=20 needed," Lynch said. "It's time to pay the power bills for California."=20 Customers of the Sacramento Municipal Utility District would not be affecte= d,=20 although it is considering its own 16 percent rate hike, also driven by=20 skyrocketing wholesale costs.=20 Lynch's proposal would let PG&E collect an extra $2.3 billion annually from= =20 customers, increasing PG&E's system average rate from 10.4 to 13.4 cents a= =20 kilowatt-hour. That comes on top of January's 1-cent average increase, for = a=20 total rate hike this year of more than 40 percent.=20 But individual rates could play out very differently. Some people would=20 escape entirely, including those on special low-income rates and residentia= l=20 customers whose electricity use falls below a state-set threshold. Companie= s=20 big enough to own their own substations could face hikes of 87 percent;=20 agricultural consumers, 10 percent to 24 percent; and other businesses, 41= =20 percent to 58 percent.=20 "Electricity hogs will have to pay more," Lynch said.=20 For his part, Davis told reporters in Los Angeles, "As governor, I have not= =20 decided there should be a rate increase, and as governor, I have not decide= d=20 that tiered pricing makes sense."=20 Although Davis has appointed three of the PUC's five commissioners, he said= =20 "I can't order or direct an independent body."=20 Davis' top staff members, however, have been in close communication with th= e=20 commission. Industrial groups indicated the governor's staff was discussing= =20 nearly identical rate hikes last week.=20 Michael Shames, head of the San Diego-based Utility Consumers' Action=20 Network, said, "This PUC doesn't do anything of this substance without the= =20 governor's approval."=20 If they pass today, Lynch said, the new rate increases should be enough to= =20 pay the qualifying facilities and the state for power that is produced or= =20 purchased from now on. Still unresolved is whether additional rate hikes wi= ll=20 be needed to cover billions that utilities say they are owed for past=20 purchases.=20 Several executives of the qualifying facilities said the plan wouldn't pay= =20 them enough.=20 "I don't think it works," said Dean Vanech, president of Delta Power Co.,= =20 which runs five gas-fired cogeneration plants in California. Four have been= =20 closed because of lack of payment. "We'd lose money marginally on every=20 kilowatt we produce," he said.=20 Still, many in the private sector saw Lynch's statement as a sign that=20 progress was being made.=20 Investors drove both utilities' shares up nearly 30 percent. Edison=20 International rose $3.35 to $14.55. PG&E Corp. was up $3.10 to $13.75.=20 Stephen Levy, senior economist with the Center for Continuing Study of the= =20 California Economy, said he thinks the state can weather the rate increase.= =20 "Last year California absorbed a 50 percent increase in the cost of gasolin= e=20 with no appreciable effect," Levy said.=20 Although California's economy will slow this year, it will be the result of= =20 the national malaise and the troubles in the technology sector, not energy= =20 costs, Levy said.=20 But the top increases will hit hard at businesses, including "cement, steel= ,=20 a lot of high tech, anybody in manufacturing," said Carolyn Kehrein, a=20 consultant to commercial power users. Some will flee the state, and many=20 others will either raise their own prices or cut back on salaries, she said= .=20 In two hours of testimony before the PUC after the proposals were unveiled,= =20 utility and consumer lawyers alternately praised and shredded them.=20 Noting utilities' last proposal was for a lower increase, Robert Finkelstei= n,=20 attorney for The Utility Reform Network, said, "You're surpassing their=20 wildest dreams. That's very, very disturbing."=20 The Lynch plan relies heavily on a state bond offering to finance a major= =20 portion of the Department of Water Resources' electricity purchases. In doi= ng=20 so, "we are borrowing against the future to pay the extremely high rates of= =20 today," said Severin Borenstein of the University of California Energy=20 Institute in Berkeley. "We're just paying it on an installment plan instead= =20 of paying all right now."=20 But he said massive, immediate rate hikes could shock California into a=20 recession. "We're doing a balancing act," he said.=20 Bee staff writer Emily Bazar and correspondent Cheryl Miller contributed to= =20 this report.=20 ---------------------------------------------------------------------------= --- --------------------------- Cox new minority leader in GOP coup: Assembly conservatives want to flex=20 energy muscle=20 By Jim Sanders Bee Capitol Bureau (Published March 27, 2001)=20 Assembly Republicans staged a two-hour coup Monday that ended with Sacramen= to=20 County's Dave Cox being named minority floor leader, a move sparked by=20 conservatives pushing for a more confrontational approach to the energy=20 crisis.=20 Cox, of Fair Oaks, vowed to be more "aggressive and proactive" on energy=20 issues. He declined to comment on reports that his predecessor, Bill Campbe= ll=20 of Villa Park, was dumped in part because he was working too closely with= =20 Democrats.=20 "We don't want to talk about individual personalities," Cox said when asked= =20 why Campbell was replaced after less than five months in the leadership pos= t.=20 "We don't want to sensationalize it. It's a family matter. We'll handle it = in=20 the family."=20 Cox, 63, who is the sixth Assembly Republican leader since late 1995, has= =20 significant experience in the energy field. He served for four years on the= =20 Sacramento Municipal Utility District's governing board, and later spent si= x=20 years as a Sacramento County supervisor before joining the Assembly in 1998= .=20 Under his leadership, Cox said, Republicans will articulate an energy crisi= s=20 "game plan" and specific measures to help generate adequate power supplies = by=20 2004.=20 Although Republicans hold only 29 seats in the 80-member Assembly, Cox said= =20 that does not mean the party has no control over legislation.=20 "You have as much power as you think you have," he said.=20 Privately, Assembly Republicans said Cox's selection was driven by a feelin= g=20 that they need to further distance themselves from Gov. Gray Davis' power= =20 plans and by several key energy-related developments within the past week:= =20 The Legislature is bracing to vote on separate bills that would provide=20 long-term contracts for alternative energy providers and would set the stag= e=20 for California to market billions in bonds to buy electricity in years to= =20 come.=20 Both those votes require a two-thirds majority to take effect immediately,= =20 meaning that at least five Republicans would have to join with Democrats in= =20 supporting the measures. Republicans feel that situation gives them leverag= e,=20 and many want a tough leader negotiating on the party's behalf.=20 At a party caucus late last week, many Republicans were upset by the=20 Democrats' decision to place both key energy issues - and a third that woul= d=20 extend an existing rate cap to large San Diego businesses - into a single= =20 bill, AB 8x.=20 Assembly Republicans adamantly opposed that single-bill strategy but were= =20 placed in an awkward political position - they could either swallow their= =20 philosophical opposition or vote against the bill and take the blame if=20 blackouts resulted.=20 As Republicans debated the issue in tense party caucuses, Campbell commente= d=20 that he thought the Democrats' bill would pass. Opponents were livid. He=20 later said he did not support AB 8x and was simply providing "cover" for=20 colleagues who planned to vote "yes."=20 Republicans ultimately voted as a bloc against AB 8x and demanded that all= =20 three issues be considered in separate bills. Assembly leaders negotiated= =20 throughout the weekend, but the issues remain unresolved.=20 During last week's tense party caucuses, Assemblyman Dennis Mountjoy,=20 R-Monrovia, reportedly criticized Campbell for leadership weaknesses.=20 Campbell lost his temper, adding momentum to a growing feeling of frustrati= on=20 within the caucus, sources said.=20 Campbell said Monday that he doubts that the confrontation with Mountjoy=20 played a major role in his removal. "That was just a case where things=20 happened and I apologized to Dennis. He said, 'It didn't bother me, I have = a=20 thick skin.' "=20 Asked if he had any regrets about his service as Republican leader, Campbel= l=20 said simply that he has enjoyed the post and did his best during the "wild= =20 ride" of this year's energy crisis.=20 "I'd like to still be the leader - but I'm not," he said.=20 Republican sources said opposition to Campbell's leadership has been growin= g=20 since January, when he voted to support AB 1x, which committed the state to= =20 enter the power-buying market in a big way and spend billions for long-term= =20 energy contracts.=20 Campbell, after seeing that he lacked support Monday, decided to step down= =20 rather than spark a divisive fight to retain the post. Sources said Cox hel= d=20 about twice as much support within the caucus as Campbell.=20 Ultimately, support from Republican conservatives led by Tony Strickland,= =20 R-Thousand Oaks, provided the margin of victory for Cox.=20 The vote marked a turnabout for Strickland's group, which sided with Campbe= ll=20 when he was elected over Cox in November.=20 Assemblyman Bill Leonard, R-San Bernardino, said it's too soon to tell=20 whether Monday's vote will leave Assembly Republicans deeply divided.=20 "It could mean less unity, it could mean more," he said. "It really depends= =20 on Dave Cox's ability to pull the caucus together."=20 GOP political consultant Wayne Johnson said he thinks term limits were a=20 factor in the caucus' impatience with Campbell.=20 "Everybody knows they're not here for very long, and when you're here durin= g=20 what is becoming somewhat of a crisis environment, people want to be a litt= le=20 more proactive," Johnson said.=20 Ray McNally, a Republican Party consultant, called Campbell an "energy=20 casualty."=20 Under Cox, he said, Assembly Republicans will be "more aggressive in=20 presenting alternatives," and Cox will "work harder to show the differences= =20 in approaches to solving the energy problem."=20 ---------------------------------------------------------------------------= --- ------------------------------ Dan Walters: An absolutely incredible tale (Published March 27, 2001)=20 From the onset of his governorship two-plus years ago, Gray Davis has=20 insisted, by both public words and private acts, that he and he alone would= =20 make his administration's major policy decisions.=20 Legislators and lobbyists have complained that no one in Davis' office was= =20 empowered to give an up or down signal on pending legislation, and=20 administration officials have recounted grimly - and very privately - tales= =20 about Davis' insistence on deciding even minuscule policy matters. The=20 governor once castigated one of his Cabinet appointees before her colleague= s=20 in the harshest possible language for making an environmental policy change= =20 without his approval. The most routine action by a state agency is trumpete= d=20 through the governor's media office. Davis has even joked about his=20 micromanagerial tendencies.=20 It is, therefore, utterly incredible - in the precise meaning of the word -= =20 that Davis' handpicked president of the state Public Utilities Commission, = a=20 former political adviser, would raise electric power rates by billions of= =20 dollars without clearing it through Davis. Yet that's what the governor's= =20 mouthpiece asserts.=20 On Monday, PUC President Loretta Lynch - acknowledging what anyone with hal= f=20 a brain knew weeks ago - declared that power rates would have to jump=20 sharply. She is proposing an increase of three cents a kilowatt-hour, about= =20 40 percent, in areas served by private utilities to cover the massive costs= =20 associated with the current crisis, with a "tiered" structure to impose mos= t=20 of the burden on high- volume power users.=20 Even Lynch was fudging, however, when she insisted that the boost - from=20 about seven cents a kilowatt-hour to 10 cents - would be "all that is neede= d=20 going forward." In fact, as anyone who can do simple arithmetic can=20 calculate, it's only the beginning of a series of rate jumps that will be= =20 needed to cover past debts and current wholesale costs. It's not improbable= =20 that ultimately, rates will double (not counting another nickel a=20 kilowatt-hour that's imposed for delivery and other costs).=20 Lynch's public statement came just three days after Davis' aides briefed ke= y=20 legislators on the likelihood of sharp rate boosts. Throughout, however,=20 Davis' spokesmen have insisted that the governor was not supporting such=20 increases and continues to believe that the supply and price crunches can b= e=20 handled "within the existing rate structure," as one euphemistic version pu= t=20 it.=20 The latest spin was issued by Davis' press secretary, Steve Maviglio, after= =20 Lynch's statement. "The governor has not had conversations with any (utilit= y)=20 commissioners about a potential rate hike," the Maviglio statement said. "I= t=20 is still his hope and expectation that this matter can be resolved within t= he=20 existing rate structure."=20 Clearly, the governor, who has been so insistent on doing things his way - = a=20 tendency bordering on obsessive-compulsive behavior - has gone into the=20 bunker on this one, allowing Lynch to take the heat from consumer groups,= =20 which immediately denounced the proposed rate increase as a giveaway to the= =20 utilities.=20 It's cowardly, especially because the current crisis is largely a product o= f=20 dithering by Davis and Lynch last summer when the first price-supply proble= ms=20 appeared. Had they acted forthrightly then, with such steps as long-term=20 supply contracts, it would have been a relatively minor bump rather than a= =20 full-blown disaster that threatens the state's business climate and its=20 solvency and will cause financial pain for Californians.=20 If California needs a utility rate increase, so be it. But we Californians= =20 would appreciate not being treated like children who need sugarcoating for= =20 the bad-tasting medicine. And we'd also appreciate not having our=20 intelligence insulted with fairy tales from the Governor's Office.=20 DAN WALTERS' column appears daily, except Saturday. Mail: P.O. Box 15779,= =20 Sacramento, CA 95852; phone (916) 321-1195; fax: (781) 846-8350=20 E-mail: dwalters@sacbee.com ---------------------------------------------------------------------------= --- Daniel Weintraub: No crisis is big enough to slow Davis' fund spree=20 (Published March 27, 2001)=20 If Gov. Gray Davis' potential opponents wanted to invent an anecdote to use= =20 against him when he runs for re-election next year, they couldn't do any=20 better than the one he handed them Friday.=20 While lawmakers desperately in need of leadership deadlocked on crucial=20 legislation to help solve California's energy crisis, Davis was at a Palm= =20 Springs country club and golf course, raising money to add to his campaign= =20 committee's already record-shattering $26 million bank balance.=20 The governor's spokesman assures us that Davis did not actually play golf= =20 Friday. He merely stopped by the fund-raiser because he had some time to ki= ll=20 between a morning groundbreaking ceremony and an afternoon television=20 interview.=20 Right. Davis may have been in Palm Springs on state business, but it's=20 curious that, wherever he goes, this governor always seems to find a way to= =20 raise some money. Even if he didn't play golf, the incident drives home the= =20 image of a governor so preoccupied with his own re-election that he can't= =20 stay on-task in Sacramento to work on what is arguably the biggest crisis a= ny=20 California politician has ever faced.=20 While Davis was rubbing shoulders with wealthy supporters in the desert, hi= s=20 staff and some investment bankers were briefing lawmakers on just how bad t= he=20 energy crisis has become. The state may need to borrow $23 billion before= =20 it's over, the bankers said, not the $10 billion that the governor has=20 publicly announced. And the idea of keeping the lights on without further= =20 rate increases - a mantra to which Davis has clung against all reason - is = a=20 fantasy. Rates will have to rise, perhaps double, to get us out of this,=20 according to the governor's staff. You cannot forever buy a dollar's worth = of=20 power, they are saying, with 50 cents.=20 This is incredible stuff, especially coming from the governor's own people.= =20 But what's even more astounding is that this news was delivered to the=20 Legislature, and thus the public, before Davis himself was fully briefed.= =20 Davis is not only out of town, it turns out. He's out of touch. Of course, = we=20 didn't need Friday's fund-raiser to figure that out.=20 Last week, to put it mildly, was a bad one for the governor, whom critics= =20 have begun to call the prince of darkness. It began with two days of rollin= g=20 blackouts that would not have happened but for Davis' inattention to a=20 problem that threatened to shut down between 10 percent and 20 percent of t= he=20 state's already short power supply. Alternative energy producers, including= =20 cogeneration plants that produce electricity as a byproduct of a=20 manufacturing operation, were going dark because they weren't getting paid= =20 for their electricity and could no longer afford to buy the fuel that fires= =20 their plants.=20 It has been widely known for months that the utilities weren't paying these= =20 power producers. The Legislature has been working on a measure to get them= =20 paid and lower their rates by roughly half. It's a very important part of a= ny=20 comprehensive solution to the crisis. But after the blackouts hit, Davis=20 acted as if he'd only just discovered the problem. He was outraged. He said= =20 it was "immoral" for the utilities to collect money from ratepayers and not= =20 pay their suppliers.=20 But that was only the beginning. The battle over getting the small energy= =20 producers paid led to questions about how the state would be paid for the= =20 power purchases Davis has been making since January on behalf of the=20 utilities. Davis intends to float a bond measure - public borrowing - to=20 reimburse the state's general fund for the $4 billion-plus that the emergen= cy=20 buys are costing taxpayers. The bond is supposed to be retired by dedicatin= g=20 a share of future electricity rates to repayment. For the transaction to=20 work, the bond buyers insist on getting first call on the money collected b= y=20 the utilities.=20 The law Davis signed in January when he started buying the power was suppos= ed=20 to put the state, and its bond partners, at the front of the line for the= =20 utilities' cash. But the utilities, particularly Pacific Gas & Electric,=20 don't think the law does that. And Davis apparently failed to get their=20 signature on an IOU before he put taxpayers on the hook to save the compani= es=20 from bankruptcy.=20 These are rather large details to miss for a guy who has a reputation as a= =20 control freak and a micromanager. But they are part of a pattern stretching= =20 back to last summer, when Davis brushed off early warnings about the=20 potential depths of the crisis he was even then trying to avoid. More and= =20 more he gives the impression of a man not so much trying to resolve the=20 energy crisis but of one who is thinking first, and foremost, about saving= =20 his own political skin. The problem is, the more he focuses on his own=20 prospects, the worse they become.=20 It would be nice if Davis would suspend his political money-grubbing for a= =20 few weeks and work full-time on the business he was elected to do. But then= =20 again, maybe he should schedule even more fund-raisers: The way things are= =20 going, come re-election time, he is going to need every penny he can get.= =20 Daniel Weintraub's column appears on Sundays, Tuesdays and Thursdays. He ca= n=20 be reached at (916) 321-1914 or at dweintraub@sacbee.com.=20 ---------------------------------------------------------------------------= --- Energy woes give nuclear plants a life=20 Crisis offers second chance to all-but-discarded industry By Bruce Lieberman=20 UNION-TRIBUNE STAFF WRITER=20 March 26, 2001=20 A group of nuclear power advocates and energy experts gathered in an=20 auditorium in Irvine last month to discuss "Nuclear Power: The Option for t= he=20 21st century?"=20 Their talk was upbeat.=20 Even asking that question would have been laughable five years ago.=20 In 1996, California was heading toward a deregulated electricity market. Th= e=20 commercial nuclear power industry was heading toward extinction.=20 No way could it compete with coal and natural gas fired plants in a=20 deregulated market. Never would a utility invest billions of dollars to bui= ld=20 a nuclear power plant when it had no guarantee of recovering that investmen= t=20 through customer rates, which the architects of deregulation said would onl= y=20 fall.=20 No one had ordered a nuclear power plant in this country since 1978, the ye= ar=20 before a partial meltdown at the Three Mile Island plant and eight years=20 before a nuclear reactor blew up at Chernobyl.=20 Political support for nuclear power was all but dead, and electric utilitie= s=20 in the United States knew it.=20 That was then.=20 Today, the country's nuclear power industry is looking at California's=20 troubled experiment with electricity deregulation, environmental concerns= =20 over global warming and an unyielding demand for electricity -- and they se= e=20 one thing:=20 Opportunity.=20 "I'm extremely optimistic about the future of nuclear power in the U.S.,"= =20 Corbin A. McNeill, Jr., chairman and co-chief executive officer of utility= =20 giant Exelon Corp., told the Irvine symposium.=20 Nuclear power advocates across the country say the industry is safer, more= =20 efficient and more economically viable than ever before.=20 "I personally believe there will be a new generation of nuclear power plant= s=20 in this country," said Ray Golden, a spokesman for Southern California=20 Edison's nuclear power plant at San Onofre. "It's a function of when."=20 Late last month, Senate Republicans introduced an energy bill that could le= ad=20 to more nuclear power plants.=20 The National Energy Security Act, introduced by Sen. Frank Murkowski of=20 Alaska, would give a big boost to the industry. It would provide nearly $1= =20 billion in research and development money, financial rewards for operators= =20 who make nuclear power plants more efficient, and industrywide tax breaks.= =20 Critics say the bill would just give taxpayer support to a dying industry.= =20 "Clamoring for new subsidies doesn't help the industry make the case that i= t=20 is now economically competitive and poised for a resurgence," said=20 Christopher Sherry, research director for the Safe Energy Communication=20 Council, a coalition of environmental groups founded after the 1979 acciden= t=20 at Three Mile Island. New lease on life Two primary changes in the nuclear power industry have given advocates reas= on=20 to be optimistic.=20 First, commercial power plants have become more efficient.=20 The Nuclear Energy Institute, the industry-backed trade association in=20 Washington, estimates that improvements in output at the nation's 103=20 commercial nuclear reactors have added the equivalent of about 25 1,000=20 megawatt-reactors.=20 The industry, matured by decades of experience, has improved safety and=20 shortened routine shutdowns for refueling and maintenance. Electricity=20 production costs are at an all-time low, at 1.83 cents per kilowatt-hour=20 (down from 3.12 cents in 1987), making nuclear energy competitive with coal= =20 and natural gas, according to the institute.=20 Second, the federal government has begun extending operating licenses for= =20 nuclear reactors.=20 Since last March, the Nuclear Regulatory Commission has extended the 40-yea= r=20 operating licenses for five reactors an additional 20 years. The operators = of=20 five more reactors have applied for license extensions, and an additional 2= 8=20 are expected to seek extensions within the next five years, the institute= =20 said.=20 Southern California Edison has not decided whether it will seek a license= =20 extension for San Onofre's two remaining reactors, Units 2 and 3, Golden=20 said. Both are scheduled to be shut down in 2022.=20 In those reactors that obtain license extensions, utilities see new value,= =20 and a profitable future.=20 Environmentalists see an avoidable danger.=20 Public Citizen, Ralph Nader's consumer advocate group, has called extending= a=20 nuclear power plant's license a "high-stakes gamble" that risks safety in= =20 aging plants.=20 Critical components in a nuclear power plant, including the reactor pressur= e=20 vessel that holds nuclear fuel and the thousands of steam generator tubes= =20 that circulate heated and irradiated water, endure extreme stresses and=20 degrade over time.=20 "There was a reason (the nation's nuclear power plants) originally had=20 40-year licenses," said Scott Denman, executive director of the Safe Energy= =20 Communication Council.=20 New sales, new worries With license extensions, nuclear power plants are now seen by buyers as=20 profit centers. Six commercial nuclear reactors have been sold since=20 mid-1999, and the sale of eight reactors is pending, according to the Nucle= ar=20 Energy Institute.=20 The merger of several big utilities has consolidated ownership of commercia= l=20 nuclear reactors. The marriage of Commonwealth Edison-Unicom in Illinois an= d=20 PECO Energy Co. in Pennsylvania in October created Exelon Corp. and placed = 17=20 reactors under one corporate roof.=20 McNeill, of Exelon, said the consolidation is creating tremendous economies= =20 of scale that are bringing down operating costs.=20 Critics worry about a new rivalry between utilities that operate the plants= .=20 "Electricity deregulation sets up a direct competition between power plants= ,=20 potentially compromising the safe operation of nuclear power plants as owne= rs=20 attempt to minimize operation and maintenance costs while maximizing=20 electricity production and sales," Public Citizen has written.=20 The environmental group argues that a Feb. 3 electrical fire in the turbine= =20 room of San Onofre's Unit 3 reactor, which occurred as workers were=20 re-starting the reactor after a routine refueling and maintenance outage,= =20 shows that the industry is not as reliable as advocates would like the publ= ic=20 to believe. Damage caused by the failed circuit breaker that caused the fir= e=20 will keep the 1,100-megawatt reactor shut down through mid-May.=20 "The NRC and the nuclear industry have been skimping on maintenance during= =20 refueling to improve the profitability of nuclear reactors," said Public=20 Citizen's Jim Riccio, senior policy analyst for the group's Critical Mass= =20 Energy and Environment Program.=20 Yet, according to reports the company filed Feb. 16 with the Securities and= =20 Exchange Commission, Southern California Edison, the majority owner of the= =20 San Onofre plant, will lose between $80 million and $100 million because of= =20 the Feb. 3 fire.=20 That comes at a rough time for the cash-strapped utility.=20 The San Onofre nuclear power plant is the company's most important asset at= a=20 time when it is near bankruptcy because of skyrocketing electricity costs= =20 from out-of-state power generators.=20 "San Onofre is the only thing that makes the company money," Golden said. State's nuclear future California, the most populous state in the country and the world's sixth=20 largest economy, has four nuclear reactors -- two at San Onofre and two at= =20 the Diablo Canyon nuclear power plant near San Luis Obispo. Yet, those four= =20 nuclear reactors generate more than 4,000 megawatts of electricity, nearly = 18=20 percent of the electricity generated in California.=20 A third plant, Rancho Seco, near Sacramento, was shut down in 1989 when=20 voters demanded its closure. Opponents said it was badly run.=20 Yet, so desperate are state legislators to find sources of power that at=20 least one has discussed turning Rancho Seco back on. On Feb. 22, state Sen.= =20 Tom McClintock, R-Thousand Oaks, introduced a bill to study whether the sta= te=20 should buy Rancho Seco.=20 McClintock said the plant could be put back into service in nine months for= =20 $500 million. And, with new turbines, the plant could increase its producti= on=20 of electricity from 800 megawatts to 1,100 megawatts -- enough power for mo= re=20 than a million people.=20 McClintock acknowledges there is little enthusiasm in the state Legislature= =20 for embracing nuclear energy as one answer to California's energy crisis.= =20 "Politically, they're scared to death of it," he said.=20 John. P. Holdren, a professor of environmental policy at Harvard's John F.= =20 Kennedy School of Government, said the high cost of building nuclear power= =20 plants likely will keep the industry from expanding in the short term.=20 In the longer term, though, Holdren said nuclear energy could offer a real= =20 alternative to fossil fuels and thereby help combat global warming.=20 In testimony to Congress last June, he outlined several conditions that mus= t=20 be met before the nuclear energy production can expand. Among them were som= e=20 high hurdles:=20 ?The industry must become competitive with other alternative energy sources= =20 that do not emit carbon into the atmosphere, such as hydro-electric power.= =20 ?Nuclear power plants around the world must prove they are safe.=20 ?The nation must find a permanent repository for nuclear waste and build=20 temporary storage facilities until one opens.=20 ?Research into reprocessing used nuclear fuel, which produces a form of=20 plutonium that could be used in nuclear weapons, should be suspended.=20 ?Nuclear energy must gain widespread public acceptance.=20 New breed=20 If any power company debuts the next generation of nuclear power plants in= =20 the United States, it may very well be Exelon Corp.=20 The company is helping to finance research in South Africa into a new type = of=20 nuclear reactor, called the "pebble bed modular reactor." The 110-megawatt= =20 reactor, about a tenth the size of conventional nuclear reactors in the=20 United States, would be designed to eliminate the risk of a meltdown, backe= rs=20 say.=20 Passive safety features would eliminate the need for redundant back-up=20 systems, containment structures and off-site emergency plants, drastically= =20 cutting costs. Because of their modular design, additional reactors could b= e=20 added at a single site. McNeill said the new technology could be imported t= o=20 the United States and Europe within the next few years.=20 "A typical plant should be able to generate a kilowatt of electricity for= =20 less than a penny," he said.=20 Environmental groups have been extremely critical of the design, saying tha= t=20 it needs some type of containment structure, such as the concrete domes at= =20 San Onofre, to keep radiation from escaping into the atmosphere should=20 disaster strike.=20 Meanwhile, the Nuclear Regulatory Commission has approved three designs for= =20 other, more conventional reactors.=20 McClintock said it's only a matter of time before politicians and the publi= c=20 re-think their positions on nuclear energy.=20 The legislator predicts that a shift in opinions will come this summer, whe= n=20 projections by the California Independent System Operator show that=20 electricity supply shortages will force blackouts on 6 million people.=20 "By the time the state has survived the summer of 2001," McClintock said, "= as=20 a practical matter, we'll be forced to take a new look at nuclear energy.= =20 .?.?. It is going to be a very ugly, ugly awakening for a lot of politician= s=20 who sat around and did nothing." ---------------------------------------------------------------------------= --- ----------- Top state power regulator proposes 40 percent rate increase=20 By Karen Gaudette ASSOCIATED PRESS=20 March 26, 2001=20 SAN FRANCISCO =01) California's top power regulator proposed a 40 percent h= ike=20 in electricity rates Monday, saying such an increase should encourage=20 customers to cut back on usage and conserve enough power to get through the= =20 hot summer months.=20 Loretta Lynch, president of the Public Utilities Commission, said rates=20 should increase by an average of 3 cents per kilowatt hour. The current rat= e=20 averages 7.5 cents per kilowatt hour.=20 The higher rates could go into effect as early as Tuesday, when the PUC=20 meets. Lynch and two other members of the five-member PUC were appointed by= =20 Gov. Gray Davis, and Lynch's proposal is expected to be approved by the=20 commission.=20 Lynch, who repeatedly refused to characterize the hike as a 40 percent=20 increase, said the increase was needed to avoid significant power problems= =20 this summer.=20 "That number should be all that is needed going forward," she said at a new= s=20 conference, "to keep utilities solvent and ensure that the treasurer of the= =20 state can issue bonds."=20 Lynch's proposal is at odds with that of administrative law judge Christine= =20 Walwyn, who recently advised the PUC that rate increases were not necessary= .=20 Any increase would be on top of the 9 percent to 15 percent rate increase t= he=20 PUC approved in January, and an additional 10 percent increase already=20 scheduled for next year.=20 Lynch also supports a "tiered" rate system that would charge residential an= d=20 businesses customers more if they're large users and fail to cut back, a mo= ve=20 aimed at encouraging conservation.=20 The governor repeatedly has said he is confident the state's power crisis c= an=20 be resolved without further rate hikes. But Davis aides have concluded that= =20 rates must rise, given that wholesale power costs remain high. Several=20 lawmakers, including Assembly Speaker Bob Hertzberg, have said a rate=20 increase is inevitable.=20 "It's obvious to me that unless you rob a bank or win a lottery you are not= =20 going to be able to do this without raising rates," Senate President Pro Te= m=20 John Burton, D-San Francisco, said Monday.=20 Southern California Edison Co. and Pacific Gas & Electric Co. both have=20 pushed for further rate increases, and PG&E has said its current rates woul= d=20 be insufficient to cover its bills and the state's.=20 Administration officials have been negotiating with PG&E, Edison and San=20 Diego Gas & Electric about purchasing the utilities' transmission lines to= =20 give the companies cash to pay their bills.=20 PG&E and Edison say they've lost more than $13 billion since last summer du= e=20 to high wholesale electricity costs that California's 1996 deregulation law= =20 prevents them from collecting from their customers.=20 ---------------------------------------------------------------------------= --- ---------- Supplier Duke offers to forego some charges=20 By Leslie Gornstein ASSOCIATED PRESS=20 March 26, 2001=20 LOS ANGELES =01) A North Carolina energy supplier offered Monday to slice n= early=20 $20 million off California's emergency power bill for January and February = if=20 its debtors agree to pay.=20 Under increasing pressure from state and federal regulators, Duke Energy=20 offered to forego part of what it charged for power during Stage 3 alerts i= n=20 January and February.=20 The power went to California's Independent System Operator, which runs 75= =20 percent of the state's power grid, and to the now-defunct Power Exchange.= =20 North Carolina-based Duke offered to drop $19.8 million in so-called "credi= t=20 premiums," but only after the two entities agree to pay $273 per megawatt= =20 hour for power supplied in January and $430 per megawatt hour in February.= =20 ISO spokesman Patrick Dorinson refused to comment on the offer.=20 Duke has not been paid for any power sent to California in January and=20 February, spokesman Tom Williams said Monday.=20 The Federal Energy Regulatory Commission said recently that $273 in January= =20 and $430 in February were the highest rates that any supplier could charge= =20 without triggering suspicion of gouging.=20 Williams would not say how often Duke's rates exceeded those caps during th= e=20 two months, nor would he say how many megawatt hours Duke sold to Californi= a=20 during the stretch.=20 But he did admit Duke often charged more than those rates. He called the=20 additional charges "credit premiums" =01) typical fees within the industry.= =20 Suppliers often charge customers more if they have bad credit or suspect th= ey=20 will be unable to pay.=20 FERC has said that Duke potentially owes California $21.14 million in=20 overcharges for the first two months of the year.=20 The company's offer was not meant to be an admission of price gouging,=20 Williams said.=20 "We have not been paid a dime," Williams said. "It is not unusual to have= =20 credit premiums."=20 Duke, along with Reliant Energy Services, Dynegy Power Marketing Inc.,=20 Williams Energy Services Corp., Mirant and Portland General Electric, may= =20 have overcharged California by as much as $125 million in January and=20 February, FERC has said.=20 Since the state's power crisis erupted, power at times has cost 15 to 20=20 times more than it did a year ago.=20 Before the energy crisis started, electricity was selling at an average=20 wholesale cost of $30 a megawatt hour.=20 The crisis stems from 1995 state laws attempting to deregulate the Californ= ia=20 power market. The attempt has been criticized for sinking the utilities,=20 trapping them between state-mandated price caps and soaring electricity=20 prices on the open market.=20 ---------------------------------------------------------------------------= --- ----------- PUC to Vote on Big Rate Hike; OK Is Likely=20 Electricity: Agency chief urges a boost of about 40% for many, and calls it= =20 necessary to raise cash and encourage conservation. Higher cost could show = up=20 in May bills.=20 By TIM REITERMAN and NANCY VOGEL, Times Staff Writers=20 ?????SAN FRANCISCO--Millions of Californians would see electricity rates ri= se=20 by about 40% under a plan presented Monday by the state's top power regulat= or. ?????Loretta Lynch, president of California's Public Utilities Commission,= =20 called rate hikes necessary both to raise cash and to encourage conservatio= n. ?????Her plan would charge some customers of the state's two biggest privat= e=20 utilities 3 cents more per kilowatt-hour, depending on how much electricity= =20 they consume. The higher cost would show up in May power bills. ?????Lynch promised to target the increases on heavy users of electricity a= nd=20 spare nearly half of residential customers from paying more. The commission= =20 is scheduled to vote on her proposal today, and it is almost certain to win= =20 approval, according to commissioners.=20 ?????It would cost customers of Southern California Edison and Pacific Gas = &=20 Electric a total of $4.8 billion a year.=20 ?????San Diego Gas & Electric is not covered by the proposed rate hikes,=20 though officials there said their utility should be. ?????Nor would the increases affect the customers of municipally owned=20 utilities in Los Angeles, Riverside, Pasadena, Anaheim and elsewhere. ?????Lynch's proposal drew fire from consumer advocates, sighs of resignati= on=20 from lawmakers and enthusiasm from Wall Street. Stock prices for both=20 companies jumped by nearly one-third. ?????For renters and homeowners, the proposal could cost nothing or as much= =20 as 40% more per month. Business customers--who now pay lower rates--could s= ee=20 even higher increases. ?????The latest proposed increase would come on top of an average 10% rate= =20 hike for all users imposed in January, which would become permanent under= =20 Lynch's plan. An additional 10% increase for residential and small business= =20 users is already scheduled for this time next year. ?????"We recognize the utilities are in severe financial distress," Lynch= =20 said. "For utilities to keep the lights on, we unfortunately came to the=20 conclusion a rate increase was needed." ?????Commissioner Geoffrey Brown, recently appointed by Davis, predicted th= at=20 the plan will pass. Commissioner Richard Bilas, a Republican appointed by= =20 former Gov. Pete Wilson, would not say whether he would vote for Lynch's=20 proposal but said "rates need to go up." ?????Davis, who named three of the five commissioners, distanced himself=20 Monday from the PUC action, saying that it's an independent body. He repeat= ed=20 that it is his expectation that rate increases can be avoided. ?????"I've not seen enough information to persuade me we need a rate hike,"= =20 the governor said at a news conference after speaking to students at Walt= =20 Disney Elementary School in Burbank. ?????If the increase is approved today, Lynch said, it will be refined in t= he=20 30 days it takes the utilities to change their billing processes. The rate= =20 increase would be subject to refund if it is more than enough to cover cost= s=20 of energy purchases. ?????Lynch said she cannot finalize the proposal until she gets more=20 information about power supply and cost projections from the California=20 Department of Water Resources, which began buying electricity on behalf of= =20 the nearly bankrupt utilities in mid-January. That's when some generators= =20 refused to sell to the utilities for fear of not getting paid. ?????Utilities Earned Substantial Profits ?????The utilities have been burdened by wholesale electricity prices that= =20 have topped 10 times the levels of those a year ago. ?????Rising demand for electricity across the West, plus fundamental flaws = in=20 the design of the deregulated market that California opened in 1998, have= =20 allowed sellers of electricity to earn substantial profits. Since the state= =20 stepped in to buy electricity for the utilities, it has spent about $3=20 billion covering roughly 34% of the state's power needs. ?????While Davis has adamantly resisted rate hikes, other politicians have= =20 come to call increases inevitable. The state and utilities need a better ca= sh=20 flow to cover wholesale power costs expected to soar again this summer, the= y=20 say. ?????And rate boosts will serve another critical purpose, they say, by=20 prompting Californians to switch off lights, buy efficient refrigerators an= d=20 shut down hot tubs. Such conservation will be crucial in whether the state= =20 avoids blackouts, grid operators say. ?????"If it is tiered right, it wouldn't break my heart," Senate President= =20 Pro Tem John Burton (D-San Francisco) said, adding that he expects that any= =20 increase will exempt low-income people. ?????Lynch said repeatedly that the 3-cent-per-kilowatt-hour hike she=20 proposed should be all that is necessary to allow the state and utilities t= o=20 keep buying electricity. The more than $13 billion the utilities claim they= =20 are owed for power purchases since May must be resolved through negotiation= s=20 between the governor's office and the utilities, she said. ?????The Legislature already has approved a bill guaranteeing that those wh= o=20 use 30% more than their minimal allocation, known as the baseline, won't fe= el=20 the hikes. ?????The baseline is a certain amount of electricity--50% to 60% of the=20 average residential use per month--that varies regionally, so that a=20 homeowner in the desert has a higher baseline amount than one living on the= =20 temperate coast. Electricity consumed up to the baseline amount costs less. ?????Last year, Edison customers paid 6.2 cents per kilowatt-hour for=20 electricity. (The average home uses about 700 to 1,000 kilowatt-hours per= =20 month.) The PUC raised that rate to 7.2 cents in January, and Lynch's=20 proposal would boost it to 10.2 cents. ?????Edison customers also pay an additional 5.25 cents for distribution,= =20 billing and other costs on top of the electricity charge. ?????Lynch projects that under her plan about half of Edison's households= =20 would have no monthly bill increases, one-fifth would have an 8% increase,= =20 and fewer than about one-third of the households would have a 27% increase. ?????Rather than welcome the potential rate hikes, Edison officials said th= ey=20 were frustrated that the PUC proposal does not guarantee that the higher=20 rates will cover all of the utility's and the state's costs. ?????"It helps, but it doesn't solve the problem," said John R. Fielder, a= =20 senior vice president at Edison. "And it's really vulnerable because if it'= s=20 not enough, then what do you do?" ?????Fielder pointed out that when Edison argued for higher rates in=20 December, it was turned down, causing the utility to accumulate additional= =20 billions in debt. Monday's PUC proposal treats that debt as a "stranded=20 cost," which the utility could eventually be expected to absorb, he said. ?????In a two-hour hearing on Lynch's proposal, PG&E lawyer Chris Warner=20 called it a "a step in the right direction." ?????"We agree with President Lynch that it's time to pay the power bills,"= =20 he said. Warner declined to elaborate until the utility could study the=20 proposal further. ?????Consumer groups immediately attacked the rate hike proposal. ?????Jason Zeller, an attorney with the PUC's independent Office of Ratepay= er=20 Advocates, complained that "customers had no notice that they would be sock= ed=20 with the largest rate increase in California history." ?????"My big concern . . . is it imposes massive increases, damages the=20 economy, and there is no guarantee it would do any good," Zeller said. ?????Bob Finkelstein of the Utility Reform Network said: "The focus [of the= =20 PUC] should be to bring prices down, not rates up." ?????Power sellers in California's market have "an uncanny ability to sniff= =20 out money," Finkelstein said, and the Lynch proposal "only puts more on the= =20 table." ?????Lynch blamed the need for rate hikes on exorbitant prices for wholesal= e=20 electricity, noting that California paid $
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