California likely won’t see lower bills, despite end of freeze

By Karen Gaudette, The Associated Press
Monday March 25, 2002

SAN FRANCISCO – When the natural gas and electricity bill arrives each month, Jenny Lovrin splits the cost between herself and five roommates. She used to rip open the envelope and find they owed less than $100. This winter’s bills have hit $225, making her cringe. 

“Every month I’m afraid to open that bill and see how much higher it’s gotten” said Lovrin, who works as a receptionist. “With six people it’s hard to tell everybody, ’Turn off the lights, don’t use the heater as much.”’ 

It’s been nearly a year since rolling blackouts and ballooning debts prompted California power regulators to raise electric rates for customers of Pacific Gas & Electric Co. and Southern California Edison to among the country’s highest. The Public Utilities Commission later hiked rates for San Diego Gas & Electric Co. consumers last summer. 

According to the Legislature’s ill-fated 1996 plan to deregulate the state’s electricity markets, the end of March also marks the end of the freeze on rates that utilities say ruined their credit ratings by blocking them from passing along soaring power prices to ratepayers. 

Despite lower wholesale energy prices recently, the end of the rate freeze won’t bring relief any time soon to consumers like Lovrin as well as small businesses, schools, farmers and even industrial giants. 

“I think the most likely outcome is that rates will be at this level for a long time,” given the billions the state must pay for all the power it has bought, said Severin Borenstein, director of the University of California’s Energy Institute. 

“I don’t think they’re likely to rise any time soon, but I think that once the PUC has increased rates to this level, they will follow the path of least resistance, which is to just leave them there,” he said. 

That’s unwelcome news at LaurelGlen Farms, a horse ranch in Placerville that cut its electricity use by 31 percent last summer and still saw its bill nearly double. Folks there hope PG&E or the PUC will grant them a $2,544.37 credit — which they claim represents billing errors and unfair rates. 

“I’m angry and it’s just wrong and we all know it’s wrong, and yet we’re still plodding down the same path,” said horse ranch spokesman Al Colley. “The people feel helpless that they can’t do anything.” 

Deregulation was supposed to lower rates through competition between energy sellers and the state’s electric utilities. Instead, prices soared and accusations flew. 

State officials claim plant operators were in cahoots with energy sellers last winter to shutter power plants for maintenance four times as often as the previous year, forcing the state of California to step in and spend billions elsewhere for higher-priced power. 

To help pay the bill, the PUC raised rates. For millions of residential customers, that means sharply higher bills for any above-average energy use. 

While most energy use is discounted, prices rise sharply once a consumer reaches 30 percent above “baseline,” an estimate based on a typical household’s needs that varies according to seasonal temperatures, climate and neighborhood. 

But baselines have not been readjusted in years. They don’t acknowledge the prevalence of home electronics, and people living in California’s hot spots complain their allotments are too similar to customers along the breezy coast. Also, since the allotment is based on the average electricity use of an area, a family living among single folks receives a smaller allotment than a family surrounded by other families. 

Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumers Rights calls it “a subsidy for single guys.” 

“If you live in an apartment and you hardly use your stove or maybe have a TV on and that’s about it, you’re under baseline and effectively shielded from the brunt of the energy crisis,” Heller said. “But God forbid you get married and have some kids because you shoot past that baseline real quick and the price increases multiply so quickly.” 

Paul Clanon, director of the PUC’s energy division, said the commission still is determining whether the rate freeze ends March 31, or ended last year when rates rose. 

“We had hoped up until the electricity crisis that at the end of the rate freeze we could lower the rates,” Clanon said. 

Clanon said the PUC is committed to re-examining rates by the end of this year, but said unanswered questions prevent the commission from determining if adustments are needed: 

— The PUC still must determine how much utilities can charge for the electricity they generate at their power plants. 

— The PUC must declare when the freeze officially thawed. If the commission decides it melted last year, utilities could collect the full cost of last year’s energy from ratepayers, though Borenstein said it’s more likely the PUC will craft settlements instead. 

— The PUC must resolve the claims of a group of ratepayers who say last year’s rate hike was too high and has allowed PG&E to build up an excess of roughly $5 billion. The ratepayers want that money back, while the agency wants to use that money to help dig PG&E out of bankruptcy. 

— A consumer group is battling a secret settlement by the state and Southern California Edison that helps alleviate Edison’s debts in part by keeping electric rates high. 

Consumers look forward to having answers. 

“You hold out hope that things will change eventually,” Lovrin said, “but it’s been dragging out for so long now it just sort of seems kind of hopeless things will be resolved.” 


A look at factors affecting California’s electric rates: 

• Spurred by rolling blackouts in January 2001, the state has spent about $10 billion buying electricity for the nearly 9 million residential and business customers of Pacific Gas and Electric Co., Southern California Edison and San Diego Gas and Electric Co. It has pledged an additional $45 billion toward electricity to supply the state over the next two decades. 

• In March 2001, to help pay the tab, the Public Utilities Commission approved average rate increases for Edison and PG&E customers of 37 percent for residential customers who use the most electricity; 38 percent for commercial customers; hikes of up to 49 percent for industrial customers; and 15 percent or 20 percent for agricultural customers. 

• In September, the PUC raised rates for SDG&E customers by an average of 12 percent for residential customers, 13.7 percent for small businesses, 18.5 percent for medium and large businesses, 19 percent for industrial customers and 14.4 percent more for agricultural. 

• Before it determines whether rates need readjusting, the PUC must resolve a number of related factors, including deciding how much utilities can charge for the power they generate at power plants and deciding whether the rate freeze ends March 31 or ended last year. In the meantime, the state plans to float as much as $11.1 billion in bonds to help pay the contracts. That money also will fill a $6.1 billion hole in the general fund, repay a $4.3 billion loan the state took out to continue buying power and pay up to $413 million of interest on that loan, according to finance director Tim Gage. 

Sources: PUC statistics, utility filings, Associated Press research.