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Officials: Electricity rates may rise 50%

Power moves Among other developments Friday in the electricity crisis:

The Assembly opens its inquiry into skyrocketing natural gas prices, which have contributed to the rising cost of electricity.

A San Francisco bar files a class-action lawsuit accusing several natural gas companies of manipulating California’s natural gas market to drive up prices unfairly.

California is free from power alerts as reserves stay above 7 percent. ----------------------------------------------------------------------

By Jennifer Coleman The Associated Press March 24th, 2001

SACRAMENTO -- State power regulators may have to raise rates for customers of two financially strapped utilities at least 50 percent to cover the state’s power purchases on their behalf, The Associated Press has learned.

Davis administration officials told several key Assembly members Friday that the state’s power-buying for credit-poor Southern California Edison and Pacific Gas and Electric Co. could cost $23 billion by the end of next year, a legislative source told The Associated Press. The source spoke on condition of anonymity.

That’s far more than lawmakers and Gov. Gray Davis estimated when they approved legislation authorizing the state’s power purchases.

At the time, they projected they would need $10 billion in revenue bonds to buy power for the two utilities over a decade. The bonds will be repaid by the utilities’ customers over several years.

Gov. Gray Davis has said repeatedly he is confident the state’s power crisis can be resolved without further rate hikes.

But Davis’ representatives, including cabinet secretary Susan Kennedy, Finance Director Tim Gage and Deputy Chief of Staff John Stevens, warned lawmakers that customers’ rates would have to be raised at least 50 percent to cover the new projections, the source said.

That increase would come on top of the 9 to 15 percent increase the Public Utilities Commission approved in January -- and an additional 10 percent increase already scheduled for next year.

Davis spokesman Steve Maviglio confirmed that Kennedy spoke with Assembly Speaker Robert Hertzberg, D-Van Nuys, and other top Assembly Democrats on Friday.

"She talked about a number of different scenarios that are possible" depending on other legislation and rescue plans concerning the utilities, Maviglio said, declining to elaborate.

The source said the calculations were by the administration, not the PUC, which would have to implement any rate increases.

Lawmakers weren’t told over what time frame such an increase would need to be implemented, the source said.

The PUC has yet to weigh in, but is expected on Tuesday to address how customer rates will be divided between the state and the utilities.

Edison and PG&E have both pushed for further rate increases, and PG&E has said its current rates would be insufficient to cover its bills and the state’s.

Administration officials have been negotiating with PG&E, Edison and San Diego Gas & Electric about purchasing the utilities’ transmission lines to give the companies cash to pay their bills.

PG&E and Edison say they’ve lost more than $13 billion since summer due to high wholesale electricity costs that California’s 1996 deregulation law prevents them from collecting from their customers.

PG&E’s and Edison’s credit was cut off by electricity wholesalers in January. The state has been spending $40 million to $50 million a day since then to keep the lights on for their customers, authorizing use of $4.2 billion in taxpayer money so far for those purchases. That money will be repaid after the revenue bonds are issued in May.

State Controller Kathleen Connell warned this week that the state’s power-buying is gutting California’s budget surplus and putting the state at financial risk. Wall Street has also been wary. The Standard & Poor’s credit-rating agency put the state on a credit watch "with negative implications" as soon the power purchases began.

California has faced an energy crunch for months, fueled by high natural gas prices, soaring wholesale electricity costs and a tight power supply due in part to California plant maintenance and scarce hydroelectric power in the Pacific Northwest.

The Assembly on Friday opened hearings into the skyrocketing natural gas costs that will include an investigation into whether market manipulation helped drive up prices.

Pacific Gas and Electric Co. customer Gladys Cook of Sacramento told the committee her natural gas bill rose from about $47 or $57 a month last year at this time to $344 in February and $112 this month.

"It was just a terrific shock, especially after the Christmas holiday and everything," said Cook, who lives with her 87-year-old mother, a retired teacher. Cook said they turned down the heat and water heater to try to reduce their bills.

Natural gas that sells for $5.25 elsewhere sells for nearly $30 at the California border, said Assemblyman Darrell Steinberg, chairman of the Assembly Energy Oversight Subcommittee.

"We’re going to examine every possible reason for the price spike," he said.

The cities of Los Angeles and Long Beach each filed lawsuits this week accusing several gas companies of conspiring to drive up prices by limiting supply.

And Sweetie’s, a San Francisco bar, filed a class-action lawsuit Friday accusing several natural gas companies of manipulating California’s natural gas market to unfairly drive up prices.

The lawsuits say Southern California Gas Co., San Diego Gas and Electric, El Paso Natural Gas Co., Sempra Energy, El Paso Corp. and affiliated companies decided in a Phoenix hotel room in 1996 to block construction of gas pipelines that could have helped the state avoid its power crisis.

Rick Morrow, vice president of customer service for Southern California Gas Co., denied executives at the Phoenix meeting with El Paso Gas representatives were conspiring to drive up gas prices.

"There was no mystery to the meeting," he said. "What is being alleged is absolutely false."

Morrow said his company’s customers are seeing far less of an increase in gas prices because SoCal Gas has long-term shipping contracts.

-- Martin Thompson (, March 24, 2001


Published Saturday, March 24, 2001, in the San Jose Mercury News CALIFORNIA'S ENERGY CRISIS

Cost of electricity plan may soar State's price of buying power could reach $23 billion over next two years, which may force rate increases for consumers approaching 80 percent.

BY DION NISSENBAUM Mercury News Sacramento Bureau

SACRAMENTO -- The state's cost of buying power to avert blackouts could reach a staggering $23 billion over the next two years -- more than twice as much as Gov. Gray Davis originally projected -- and could lead to a dramatic rate increase for millions of utility customers, legislative sources said Friday.

The new figures floated by top Davis advisers hit the state Capitol like a bombshell, leading lawmakers to delay plans to push through a critical part of the state's energy crisis rescue plan.

``I think we're facing rate increases and likely blackouts this summer,'' said a somber state Sen. Debra Bowen, D-Redondo Beach, who has played a key role in trying to find a solution.

Just how the higher costs would affect rates remains unclear. Sources said the governor's aides estimated the rate increase could be as high as 80 percent, but a knowledgeable legislative staffer said it could be as low as 10 percent.

The new projections stem in part from the state's failure to sign enough long-term contracts for low-cost energy, to move aggressively on an ambitious summer energy conservation plan and to approve a bailout for Pacific Gas & Electric Co. and Southern California Edison.

Even as the latest estimates raised alarms around Sacramento, a Davis spokesman denied that the governor would need $23 billion for his power plan.

``There are a number of scenarios being discussed, none of which include a number anywhere in the ballpark of that figure,'' said Steve Maviglio, the governor's spokesman.

Based on PG&E's experience with buying power from the expensive spot market, PG&E spokesman John Nelson said it was entirely possible the state could spend $24 billion over the next two years.

Davis has been adamant that no rate increase will be needed as part of his plans to head off a summer of daily blackouts and to bail out the state's two troubled utilities.

Now his own staff is working with numbers that could undermine those expectations.

With the price tag for resolving the crisis apparently on the rise, the Democratic governor is becoming one of the last politicians in the Capitol to hold fast to the notion that rate increases can be avoided.

``Mathematics is mathematics,'' said Assembly Speaker Robert Hertzberg, D-Van Nuys. ``The picture does not look good.''

At the request of the Davis administration, Hertzberg abruptly postponed a vote Friday on a bill that would have put a $10 billion cap on a bond the state has planned to sell to buy energy.

As Hertzberg sought to round up support for the measure, sources said, top Davis aides buttonholed the speaker and asked him instead to seek a $16 billion bond to buy electricity over the next nine months.

On top of that, sources said, aides told lawmakers the state might need another $7 billion next year. Depending on estimates made about the state's power woes, one legislative aide said that could rise to $15 billion.

The request forced Hertzberg and his power crisis team to go back to the drawing board this weekend to figure out how to rewrite a measure that could face bipartisan opposition if it contains a higher price.

Consumer activists reacted with outrage to the possibility of a huge rate increase.

``If this is true, it's the end of the governor's political career,'' said Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights. ``The rate increase is certainly going to be fearsome and devastating.''

Harry Snyder, legislative advocate for the Consumers Union, said a rate increase that large would inevitably lead to a consumer uprising.

``At this point, everybody has to be contemplating that there will be a ratepayer revolt, and there will be a ballot initiative to throw all this out,'' he said.

As Davis aides and lawmakers grappled with the crisis, the governor spent part of his day at a Palm Desert country club fundraising luncheon. The governor has already raised a record $26 million for his re-election campaign and has drawn repeated criticism for devoting so much of his time to raising money.

Garry South, the governor's chief political consultant, said Davis stopped by the fundraiser while part of a busy day of official work, including a stop to break ground nearby on a new University of California management school.

``I would challenge any person in the state, including anyone in the Legislature, to make the case that they have spent more time and energy on this issue than the governor,'' South said.

Davis and state lawmakers have been struggling for months to bring an end to the energy crisis that has led to rolling blackouts and has pushed PG&E and Edison to the edge of financial collapse.

To keep the utilities afloat, the state stepped in two months ago to buy power for the companies. So far, California has set aside $4.2 billion to buy the power.

At the same time, the Davis administration has been negotiating long- term contracts with power companies in an effort to drive down the price of power. But the state has signed deals for just a third of the power it needs, which means it could be forced to pay five times as much on the spot market.

Taken together, Bowen, the state senator, said the various problems make it increasingly unlikely that the state can head off a rate increase.

``Since I've seen the numbers come in for the power we've been purchasing, I've always thought that a rate increase would be likely,'' she said.

---------------------------------------------------------------------- ---------- The Mercury News strives to avoid use of unnamed sources. When unnamed sources are used because information cannot otherwise be obtained, the newspaper generally requires more than one source to confirm the information.

Mercury News Staff Writers Mark Gladstone, Steve Johnson, Chris O'Brien and John Woolfolk contributed to this report.

-- Martin Thompson (, March 24, 2001.

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