PG&E seeks higher electricity rates : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

PG&E seeks higher electricity rates By Christian Berthelsen OF THE EXAMINER STAFF -------------------------------------------------------------------------------- PG&E intends to seek permission from state utility regulators, possibly by the end of the year, to raise electricity rates in the face of huge increases in the cost of buying power, top company officials told The Examiner Wednesday. The San Francisco utility giant, which says it serves one in 20 Americans, has racked up more than $2.2 billion in debt over the summer paying high wholesale prices for electricity while not being allowed to pass those charges on to consumers, executives said.

As a result, shares of PG&E Corp., the parent company, were hard hit by investors earlier this month. In addition, a major bond rating agency has put PG&E's short-term debt on a watch list for possible downgrade. Such a downgrade would make it more expensive for the company to borrow money.

Sources familiar with the company's financial performance say it is losing an average of $700 million a month, and its potential debt load of $3 billion may exceed by more than half its shareholder equity of $5.7 billion at the end of October.

At some point, which is still undetermined, the current freeze on utility rates in California will thaw. When that happens, PG&E will be looking to increase electricity rates to cover the cost of buying the commodity from producers in the newly deregulated utility market. The company will also try to recoup at least some of the costs from customers for the debt that has been incurred.

Company officials say the rate hike will in part insulate customers from the volatile price increases experienced in San Diego this summer, when consumers found their electricity bills triple and sometimes quadruple their normal rates.

"We have no intention of throwing our 4 1/2 million customers into the boiling waters of a wholesale market," said Gordon Smith, PG&E's president and chief executive officer, in a meeting Wednesday with The Examiner's editorial board.

Struggle ahead However, the planned request to raise rates already is setting up an intense fight with consumer advocates, who say PG&E is now trying to change the rules of the game  ones they say the company lobbied heavily for in Sacramento  now that the rules no longer benefit it. Further, they say, PG&E has reaped an enormous unseen windfall from the sale of what were thought to be so-called "stranded costs," or assets such as old power plants that were expected to be less than their book value but turned out to be worth a lot more.

On that point, company officials say they must refund to customers the benefits of the better-than-expected asset sales; as for any criticism about changing the rules, John E. Nelson, a company spokesman, said it was time to rise above traditional squabbles between consumer advocates and the utility to solve the problem.

Mindy Spatt, a spokeswoman for The Utility Reform Network (TURN), said the consumer group was adamantly opposed to any rate increase.

"What financial theory says you can come to people months after they've purchased something and retroactively raise the price?" Spatt said. "I've never heard of anything like that. Maybe I never would have turned the lights on if I had known it would cost three times as much.

"There's one place that blame doesn't belong, and that's on consumers. Consumers were told there would be lower rates, and it's unfair for legislators and utilities to turn to us and say: 'Whoa, huge mistake, you pay.'"

Competition doesn't exist In what the utility and some public officials point to as a disastrous consequence of deregulation, the competition to produce and sell power has not emerged. As a result, electricity production remains in the hands of a few wholesalers, who, with limited supply, have been able to charge exorbitant rates for supplying power to utilities.

At the same time, demand has skyrocketed, thanks to robust population and business growth, particularly in the Bay Area, where an entire industry  focused on technology and the Internet  has sprung up, dependent on electricity.

Earlier this month, PG&E's shares, which had been rising steadily all year, dropped about 30 percent, from a high of $31.81 to a low of $22.31. They have since rebounded somewhat, closing at $25.38 in trading on the New York Stock Exchange Wednesday.

Moody's, the bond rating agency, has placed the commercial paper bond rating for PG&E on a watch for possible downgrade over concern about the company's ability to pay. Moody's also issued a mid-range A3 rating for the company's long-term debt.

Ratings for the utility, rather than the parent company, remain strong, and a number of equity analysts maintain a "buy" rating on the stock, in part because they view the problem as a seasonal one that will be resolved over time  once new power plants get up and running. But in the short-term, the factors pose a serious problem for the company.

Shortages may continue "I think there's nothing really that suggests we're going to see anything more than a seasonal decline in power prices," said Herbert E. Hart, an analyst with Redwood Securities Group in San Francisco. "The shortage is still there. Politically, this is a tricky thing to resolve." On June 1, electricity costs, which had been steady at a wholesale rate of about 4 cents per kilowatt hour for California utilities, quadrupled and even nearly quintupled, reaching nearly 20 cents per kilowatt hour at times.

At the same time, the demand was such that PG&E actually shut off power for short periods to some companies in June, including Apple Computer, and came close to having to do the same thing on Monday and Tuesday last week.

A number of regulatory agencies and officials including the Public Utilities Commission, the Federal Energy Regulatory Commission and state Attorney General Bill Lockyer, have been investigating price "gaming" in the wholesale marketplace in the wake of the skyrocketing energy prices in San Diego this past summer.

One possible way of reducing PG&E's debt load would be for the FERC, which has regulatory authority in that arena, to order wholesalers to retroactively reduce the amount they charged utilities for power.

Analysts and company officials are mixed on the prospects of such an action

-- Martin Thompson (, September 28, 2000

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