State PUC Takes On High Cost Of Energy 
Regulators foresee more rate increases 
Robert Salladay, Lynda Gledhill, Chronicle Sacramento Bureau
Monday, March 12, 2001 
,2001 San Francisco Chronicle 
URL: 
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/12/M
N227831.DTL 
Sacramento -- Starting this week, state regulators will begin debating how 
much is enough when it comes to asking Californians to shoulder the 
electricity crisis by paying higher utility rates. 
Right now, there doesn't appear to be enough money to go around. The state 
government and the utilities have racked up monumental bills because of 
California's flawed deregulation system. And even with recent rate increases, 
not enough cash is coming in to pay off the debts and buy power. 
Over the next three weeks, deciding how that money gets divvied up to pay the 
state's debt will be one of the toughest jobs of the year. State Treasurer 
Philip Angelides said the state Public Utilities Commission would be 
essentially filling a shoe box with debts and commitments during a series of 
meetings and workshops this month, and it's going to be a tight fit without 
raising power bills even more. 
"The rubber hits the road in the next few weeks at the PUC," Angelides said. 
"There is a box that has to be filled up, and a no-rate-increase scenario is 
putting all of these things into this box. It'll be tough work." 
Under the law, the PUC has the power to essentially determine how much profit 
the utilities can make. It's a set formula, designed to give the power 
companies a comfortable margin and to keep power bills reasonable for 
consumers. 
But with the 1996 deregulation an utter failure in California, there are many 
more demands on that money. The utilities claim to be $14 billion in debt. 
The state of California is spending $45 million a day to buy power. Taxpayers 
have spent $3.2 billion so far, and the PUC recently said utility customers 
would be required to pay that money back. 
Then there is the $10 billion in bonds the state is selling to buy long- term 
contracts for power. Angelides said the PUC also must guarantee him an 
estimated $1.3 billion a year from consumers to pay off the bonds, which his 
office expects to begin selling by the end of May. 
That money could end up running out by September, or June 2002 under the most 
optimistic prediction, Angelides said. That could mean California would have 
to borrow even more money beyond the $10 billion -- money that consumers will 
most likely have to pay back through their bills. 
Gov. Gray Davis has said repeatedly that it is his "hope and expectation" 
that rates will not increase. But he has been criticized for seeming to say 
that a temporary rate increase approved in January will be made permanent and 
that a 10 percent rate decrease imposed when deregulation was implemented 
will be lifted next year. 
"If I wanted to raise rates, I could have solved this in 20 minutes," Davis 
said last month. 
But others are convinced now that rates will go up even more than the 19 
percent. And PUC Commissioner Richard Bilas said he thinks the rates should 
go up before the summer to encourage conservation. 
'FUNDAMENTALS DON'T CHANGE' 
"It doesn't matter what is done in terms of rhetoric, legislation, ideas or 
proposals at the commission -- the fundamentals don't change," said Bilas, a 
Republican. "There is not enough supply and too much demand. The only 
function on the demand side is a rate increase. Otherwise, people won't stop 
using electricity." 
Since the state is buying roughly 30 percent of the power used by the 
utilities -- and at the highest prices so far -- the state should be entitled 
to an equivalent share of the money coming in from consumers. 
"If we're going to issue bonds, we must have first (crack at) that money," 
Angelides said. His office believes that "a failure to (issue bonds) in the 
appropriate manner will directly and negatively impact consumer rates." 
Angelides also needs a commitment from the PUC over how the state will get 
repaid for the money it's spending to buy emergency power the utilities 
cannot afford to purchase. 
Bilas said the PUC, which will take up some of these issues at their meeting 
on Thursday, would have to face reality soon. 
'IT'S A BAND-AID' 
"It's the direction we have been moving in," he said. "We're having to face 
up to fact that there needs to be rate increase. What is being done isn't a 
solution to the problem -- it's a Band-Aid." 
The utilities, among others, are eyeing the money as well for their 
significant costs. They have accumulated massive debts that need to be 
repaid, and have investors to satisfy. 
Also looking for a slice of the pie are the alternative energy producers -- 
including wind and solar producers -- who depend on payments from the 
utilities to buy the natural gas they need to operate. 
These facilities account for nearly a third of the energy produced in 
California, and any scenario that has the state getting through the summer 
without significant blackouts requires full operation. 
"What everybody has told me is this summer is going to be murder, because we 
don't have enough," state Senate President pro tem John Burton, D-San 
Francisco, said recently. 
Three things are occurring that are designed to make sure the money going out 
to pay for debts and power is slightly less than the money coming in from 
consumers: 
Small alternative energy providers are expected to start getting lower 
payments. 
Utilities, as part of a state rescue plan still being negotiated, will be 
required to sell the electricity they generate themselves at cost. 
The state is signing long-term contracts for its share of power, which 
reduces demands on ratepayers. 
The idea is to leave enough headroom that will pay back the state for what it 
is spending over a long period of time. 
Angelides said the difference -- that headroom -- should be returned to the 
state to pay off the debts it incurred from the long-term contracts financed 
with the bond money and to buy emergency power. 
STATE WANTS ITS SHARE
"We stepped into the breach here," Angelides said. "We're entitled to a fair 
slice of the pie." 
Angelides said the new rate schedule, which the PUC is determining this 
month, should not be used to pay back utilities for any of their debts from 
before Jan. 17. That's when the state started buying power for the utilities. 
So far, the utilities are not asking for their past debts to be repaid. Some 
other financing for those must be developed, such as selling thousands of 
miles of electrical transmission lines to raise billions of dollars. 
But there may not be much headroom left to pay off all the other debts. 
Chris Danforth with the Office of Ratepayer Advocates, which is designed to 
make sure consumers get a good deal out of the PUC, said the future payments 
to the alternative facilities and contracts signed by the state were going to 
cost more than originally planned. 
That eats up some of the headroom and "is indicative of a rate increase," 
Danforth said. 
Paying the Bill 
Most of what PG&E customers pay for electricity is spoken for but the demands 
are about to get a lot bigger. . 
Breakdown of contributors to electricity production 
PG&E generated power -- What the utility produces at its own plants. 
Alternative energy -- Electricity generated by solar, wind and biomass 
companies. 
Independent generators -- Power produced at non-PG&E plants in California and 
elsewhere. . 
PG&E customers currently pay 6.5 cents per kilowatt hour 
Combined sources of electricity cost 6.134 cents per kilowatt hour 
This portion represents 0.366 cents of leftover money . 
Claims on leftover money 
-- Money owed to the Independent System Operator, which has been forced to 
buy electricity at very high prices in recent months. 
-- Money owed to the alternative energy providers. Many of these small units 
have stopped operating because they have not been paid. 
-- Emergency power purchases likely to be necessary this summer, since the 
state has not secured enough long-term contracts to provide all the power it 
needs. That could drain either the state's coffers, or be paid for by 
consumers. . 
Source: Chronicle research Chronicle Graphic 
E-mail the reporters at rsalladay@sfchronicle.com and 
lgledhill@sfchronicle.com. 
,2001 San Francisco Chronicle ? Page?A - 1