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Utilities could exercise power of eminent domain, regulator says 

SAN FRANCISCO – Utilities should buy back the power plants they sold to out-of-state wholesalers to bring soaring power costs back to earth, a regulator said Friday at the emergency public hearings on California’s energy crisis. 

“I really think the utilities are going to have to exercise their powers of eminent domain and take back the plants,” said Jason Zeller from the state Office of Ratepayer Advocates. 

The utilities, which were required to sell the plants in the switch to a deregulated energy market, dismissed the notion as unfeasible. 

Aside from the political and legal hurdles, the utilities can’t afford to pay fair market value for the plants, said Christopher Warner, chief counsel for Pacific Gas and Electric Co. 

“PG&E can not raise money any other way” than through rate increases, Warner said repeatedly at Friday’s hearing before the state Public Utilities Commission, which will vote Jan. 4 on raising electric rates. 

Gov. Gray Davis, whose appointees will have a majority on the commission as of next week, hasn’t taken a position on the buy-back idea, his spokesman, Steve Maviglio, said Friday. 

Consumer advocates suggested getting the money by selling stock, liquidating assets, or getting loans from the utilities’ parent corporations, which have combined assets $71.8 billion. 

Warner said none of these alternatives are realistic, and wouldn’t help maintain the utilities credit-worthiness, which is essential for buying power on borrowed money. 

Consumer advocates and utility officials agreed on at least one thing Friday: Raising electric bills for 25 million Californians will only be a temporary fix for the state’s energy crisis. 

Sharply higher bills would give the state’s largest investor-owned utilities enough borrowing power to put off bankruptcy and possible blackouts for a few more months. But utilities will still hemhorrhage money buying energy from out-of-state producers demanding unprecedented prices. 

“I think the generating community just sees California as a bank,” said Zeller. “And until somebody says, ’That’s enough,’ they’ll continue to do so.” 

PG&E and Southern California Edison have lost $9 billion and counting buying energy this year from wholesalers who have taken advantage of flaws in California’s partially deregulated energy market. 

PG&E officials told the PUC Friday that the 26 percent rate hike they want would only give them 5 percent of they’ll need from January to March to settle its deficit. 

SoCal Edison, which wants an immediate 30 percent hike, says its finances are similarly dire — and that it will need to raise rates by as much as 76 percent over the next two years. 

“PG&E needs enough cash and enough certainty that procurement costs will be recoverable,” PG&E lawyer Chris Warner told the commissioners. 

The PUC has said some rate hikes are necessary, but Davis reportedly drew the line at 10 percent in private negotiations with the utilities. 

Anyone thinking rate hikes are the answer should consider the case of San Diego Gas and Electric Co., which was allowed to raise rates this summer after selling off its energy plants, completing its transition to deregulation. 

Even though bills doubled and in some cases tripled for its 1.2 million customers, SDG&E President Debra Reed told the PUC that soaring wholesale prices mean its projected $420 million debt will grow substantially, putting it in the same situation as PG&E and SoCal Edison. 

All sides are hoping for federal intervention, and are waiting to see what the Bush administration will do. So far, the Federal Energy Regulatory Commission has declined to do anything that could be seen as derailing deregulation, and by all accounts, Bush isn’t likely to push price controls or dramatically intervene in California’s power problems. 

FERC has until Jan. 2 to respond to a SoCal Edison federal lawsuit that would force FERC to impose regional price caps on energy wholesalers. PG&E is preparing a similar suit. 

Meanwhile, rate hikes will enable the utilities to continue borrowing to buy power. Fifteen to 20 wholesalers have said they will no longer sell gas to PG&E because of its poor financial situation, and are only doing so now under federal order. 

“It is the cumulative effect of these (rate increases) that will give us the ability to borrow money,” said Walter Campbell, PG&E’s director of business and financial planning. 

According to documents made public at the PUC hearings, SoCal Edison has asked for rate hikes of 5 percent each six months for the next two years. These increases would kick in if SoCal Edison loses another $1 billion in the next six months — should the company make money, it would have to cut rates by 5 percent. 

If SoCal Edison continues to lose money over the two-year span, electricity prices could increase a total of 76 percent. 

Consumer advocates questioned utility executives sharply during the PUC hearing about what PG&E and SoCal Edison might have done to avoid getting into this financial mess. In particular, they noted the $115 million in dividends PG&E issued to shareholders in June. 

Walter said the payments were made to avoid injuring investor confidence, and that at any rate, they were inconsequential to the energy crisis, since it would have bought only a week’s worth of electricity.