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Lawsuit could increase consumer power bills significantly

Updated: Jan. 31, 2001 - 6:11 p.m. As lawmakers scramble to solve California's energy crisis, the state's two biggest utilities have turned to the courts in a lawsuit that could increase power rates as much as 75 percent over last year's levels.

If the utilities win the federal court battle -- and that is considered a real possibility -- most Californians would see their electric bills skyrocket. Although the numbers are in dispute, a victory from the utilities "would mean a substantial increase for all ratepayers," predicted Douglas Long, a Public Utilities Commission economist.

Pacific Gas & Electric Co. and Southern California Edison Co. are asking a federal judge to allow them to increase consumer rates, which are set by the PUC.

In court documents, Long estimated a 75 percent increase in rates the first year. The rates then would drop back to a 50 percent increase above year 2000 levels for years, presuming wholesale electricity prices remain at today's levels, he wrote in his analysis.

The utilities dispute the state analysis and say the increase is likely to be about 30 percent.

Even their opponents believe the utilities have a case.

"I think they have a plausible argument," said Jason Zeller, attorney for the Office of Ratepayer Advocates, a consumer-protection branch of the PUC that is watching the case from the sidelines.

Assemblyman Rod Wright, who heads a special Assembly energy committee, said the lawsuit has merit and represents a serious legal issue.

"You can't ask someone to do business for less than the price of doing business. Yes, there is a concern about trying to settle the lawsuit at a smaller cost," said Wright, a Los Angeles Democrat.

However, a courthouse victory is not certain. Zeller said audits of the two companies released this week could undermine the utilities' case. Those audits showed the companies funneled billions of dollars in revenue to their parent companies as profit before pleading that electric rates were too low for them to pay their bills.

Under a 1996 state law, the rates they can charge consumers for retail power are capped while the rates they must pay for wholesale power can fluctuate with the open market.

As demand mushroomed and supplies became scarce, the utilities began paying substantially more for electricity than the commission would allow them to collect from consumers.

That is what they say has pushed them on the verge of bankruptcy and more than a combined $12 billion into debt. They are asking the judge to allow them to recover that debt from ratepayers and to set rates according to their electricity costs.

Besides sending rates skyrocketing, the lawsuit could undermine proposals in Sacramento to limit rate increases as the utilities, confident in their legal action, are fighting lawmakers on key proposals.

In addition, some legislators would welcome a courtroom victory for the utilities; lawmakers could then blame the judicial system for high rates instead of accepting blame themselves.

"There's a lot of finger-pointing going on," said Janee Briesemeister, a senior policy analyst with Consumers Union, a New York-based advocacy group that publishes Consumer Reports. "To be able to blame a federal court is easier for everyone."

All the while, legislators were trying to cobble together a plan to help the utilities stave off bankruptcy. Lawmakers worked Wednesday on a $10 billion bond measure allowing the state to enter long-term contracts to buy power. It was unclear how legislative action would increase consumer rates.

But the two utilities are counting on the courts to solve their financial woes. They oppose giving up any ownership in their companies, as some in the Assembly want in return for financial help, because they believe their debt will be covered by the judge's order.

"We believe our lawsuit will give us the right to recover," Edison attorney Ron Olson said.

The litigation has also kept the utilities' creditors at bay, analysts and the utilities said. Instead of calling in their debts and forcing a bankruptcy that may only reap the creditors a cents-on-the-dollar return, creditors are awaiting a decision in the case before they might move to call in their debts.

"That is true," said Sung W. Sohn, chief economist for Wells Fargo & Co. of San Francisco.

A hearing has been set for Feb. 12 in federal court in Los Angeles, where U.S. District Judge Ronald Lew could order the PUC to lift its rate cap.

If the utilities succeed in their litigation, for example, a "conservation-conscious customer" using 250 kilowatt hours of electricity and paying $31.01 per month now would see the bill move to $54.15, nearly a 74.6 percent increase, Long estimated. A "more typical" customer using 500 kilowatt hours paying a $66.40 monthly bill, he said, would see a 69.7 percent raise to $112.67.

Edison maintains it is proposing a 30 percent increase over year 2000 rates for five years, with the option of increasing or reducing that percentage depending on wholesale electricity market conditions to ensure full reimbursement. PG&E is proposing similar increases over the same time span.

Both utilities said they would not expect to recoup their losses immediately because it would be too big of a burden on ratepayers and the economy.

"We do not want the resulting change in rates to represent an unnecessary hardship for our customers," said Edison spokesman Gil Alexander.

PG&E spokesman John Nelson said it would be "devastating to ratepayers and the economy" if they were saddled with the debt all at once.

The companies have come up with their own repayment plans. Still, even if the federal judge orders reimbursement, the PUC must approve any proposal. And at least one consumer group says it will seek immediate review in the 9th U.S. Circuit Court of Appeals if the judge rules for the utilities.

PG&E services about 4.6 million customers in Northern California whereas Edison has about $4.4 million customers in Southern California and Central California.

In their suit, the utilities allege that the state has no authority to cap rates because the federal government has authorized the nation's utilities to pass their wholesale costs to consumers. The utilities are invoking a concept known as federal pre-emption, in which federal rules supersede state rules.

Since March, when wholesale energy prices began skyrocketing, Edison has paid $4.5 billion more in electricity costs than it collected. But before the utility's cost to buy electricity spun out of control, the company transferred $4.8 billion in dividends to its parent, according to a state audit released late Monday.

PG&E's audit said the utility turned over $4.7 billion to its parent company since 1997 and failed to take reasonable steps to avoid the nearly $8 billion in debt it has accrued through wholesale power and other purchases.

Zeller said that, overall, the utilities generally have not paid more for wholesale electricity than they have collected in rates since 1996, when the PUC rate freeze was implemented.,

The utilities disagree.

"It's a fundamental tenet that wholesale electricity is supposed to be passed through to the customers that use the electricity," PG&E's Nelson said.

The cases, which are consolidated in Los Angeles federal court, are PG&E vs. Lynch, C00-4128 and Edison vs. Lynch, 00-12056.

--Associated Press

-- Martin Thompson (, January 31, 2001

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