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Small town, big trouble Filed: 01/24/2001

By JOHN HOWARD

The Associated Press

SUSANVILLE — Folks here call it "the bombshell," the official warning that their electric bills could soar another 162 percent, making them triple the size of most of California and among the highest in the country.

"It's very, very scary. It's horrible. They are telling us we'll need to make up $17 million to $19 million. We are not a wealthy community. This is going to have a devastating effect on a large portion of our population," said local school Superintendent Mark Evans.

Such a rate spike — a final decision likely will be made Feb. 6 — would drain perhaps a third of the disposable income in the town of 16,600, according to the utility directors' own estimate.

Even in a state where huge utilities appear headed toward bankruptcy, where blackouts loom daily and where residents fear for the economy, Susanville is in particularly bad shape.

The plight of this scenic high-plains town 300 miles northeast of San Francisco is clear: Its municipal utility has no power plants and is forced to buy wholesale electricity at high prices wherever it can get it.

The Lassen Municipal Utility District — known as "el-Mud" to some 10,000 Susanville customers — passed up a chance earlier this year to buy power at favorable rates under long-term contracts.

The district's directors feared binding the utility for years to come if the wholesale market dropped.

That same fear has been widely held in California: It prompted the state Public Utilities Commission to discourage long-term contracts, and many recall the contracts signed in San Diego during the 1980s in which the utility there spent hundreds of millions of dollars above market costs and suffered intense criticism.

Susanville's district also was caught short, pressured by precisely the same deregulated market forces that have forced Pacific Gas and Electric Co. to the edge of bankruptcy.

"LMUD is the poster child and harbinger of all that is wrong, and went wrong" with California's deregulation experiment, Frank Cady, the district's general counsel, wrote Gov. Gray Davis. "LMUD and the good citizens of Lassen County have been betrayed beyond biblical proportions." Thus far, Davis has not responded.

Hoping to shield its customers from rate spikes, the Susanville utility exhausted its emergency funds to cover the steadily increasing costs of wholesale energy.

But now that money, more than $3 million, is gone. And unless $19 million is found, and fast, electric bills could climb to 21 cents per kilowatt hour after Feb. 6, when the district's directors are scheduled to decide whether to raise rates. The district estimates that could send the typical homeowner's bill from the current $52 a month to $126 a month or more.

By comparison, even after the recent rate increase by the state Public Utilities Commission, SoCal Edison customers pay 7.24 cents per kilowatt hour and PG&E's ratepayers pay 6.72 cents.

To make matters worse, Susanville's neighboring Plumas-Sierra Rural Electric Cooperative recently announced a 5 percent rate reduction for its 6,500 customers.

The co-op, based in Portola, was formed 62 years ago as part of the New Deal.

It obtains its power under long-term contracts and from its own facilities, and some in Susanville want to join with Plumas-Sierra.

"If the LMUD came to us and said, ‘Let's figure out how to consolidate,' we would be happy to talk to them. Politically, we have good relations with Lassen and we get along with them," said Robert Marshall, Plumas-Sierra's chief executive.

Consolidation "might be a great idea, it might be a horrible idea. But we're happy with the way things are going, and we're not going to sit here and subsidize their customers," he added.

Most public utilities in California have been shielded from the volatility of the electricity market, which was deregulated by a law that took effect in 1998. Unlike private utilities, the publicly owned "munis" were allowed to keep their generating facilities, assuring them access to power.

The state's largest municipal utility, for example, the Los Angeles Department of Water and Power, has plenty of power for its own needs and has made more than $200 million by selling excess power to the market.

Like PG&E and SoCal Edison, LMUD will have to raise its rates to stay solvent. But unlike the huge utilities, LMUD has no rate freeze. Therefore, it can boost its rates to cover its costs.

And unlike the rate spikes earlier this year of San Diego Gas and Electric Co., where rates doubled and tripled over months, the increase for LMUD may be instantaneous.

The looming cost spikes have torn the community. The utility's public hearings have been filled with invective against the district's five-member board of directors, who have been accused in vivid language of everything from incompetence to corruption.

http://www.bakersfield.com/oil/Story/280808p-261740c.html

-- Martin Thompson (mthom1927@aol.com), January 24, 2001