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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit X-From: Jeff Dasovich X-To: Alan Comnes, Angela Schwarz, Beverly Aden, Bill Votaw, Brenda Barreda, Carol Moffett, Cathy Corbin, Chris H Foster, Christina Liscano, Craig H Sutter, Dan Leff, Debora Whitehead, Dennis Benevides, Don Black, Dorothy Youngblood, Douglas Huth, Edward Sacks, Eric Melvin, Erika Dupre, Evan Hughes, Fran Deltoro, Gayle W Muench, Ginger Dernehl, Gordon Savage, Harold G Buchanan, Harry Kingerski, Iris Waser, James D Steffes, James W Lewis, James Wright, Jeff Messina, Jeremy Blachman, Jess Hewitt, Joe Hartsoe, Karen Denne, Kathy Bass, Kathy Dodgen, Ken Gustafson, Kevin Hughes, Leasa Lopez, Leticia Botello, Mark S Muller, Marsha Suggs, Marty Sunde, Meredith M Eggleston, Michael Etringer, Michael Mann, Michelle D Cisneros, mpalmer@enron.com, Neil Bresnan, Neil Hong, Paul Kaufman, Paula Warren, Richard L Zdunkewicz, Richard Leibert, Richard Shapiro, Rita Hennessy, Roger Yang, Rosalinda Tijerina, Sandra McCubbin, Sarah Novosel, Scott Gahn, Scott Stoness, Sharon Dick, skean@enron.com, Tanya Leslie, Tasha Lair, Ted Murphy, Terri Greenlee, Tim Belden, Tony Spruiell, Vicki Sharp, Vladimir Gorny, Wanda Curry, William S Bradford, Kathryn Corbally, Jubran Whalan, triley@enron.com, Richard B Sanders, Robert C Williams, Greg Wolfe, James Wright, Dirk vanUlden, Steve Walker, Jennifer Rudolph, Martin Wenzel, Douglas Condon, wgang@enron.com, Scott Govenar <sgovenar@govadv.com<, Hedy Govenar <hgovenar@govadv.com< @ ENRON, jklauber@llgm.com, Mike D Smith, John Neslage, Janel Guerrero, Eric Letke X-cc: X-bcc: X-Folder: \Jeff_Dasovich_June2001\Notes Folders\Sent X-Origin: DASOVICH-J X-FileName: jdasovic.nsf State PUC Takes On High Cost Of Energy Regulators foresee more rate increases Robert Salladay, Lynda Gledhill, Chronicle Sacramento Bureau Monday, March 12, 2001 ,2001 San Francisco Chronicle URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/03/12/M N227831.DTL Sacramento -- Starting this week, state regulators will begin debating how much is enough when it comes to asking Californians to shoulder the electricity crisis by paying higher utility rates. Right now, there doesn't appear to be enough money to go around. The state government and the utilities have racked up monumental bills because of California's flawed deregulation system. And even with recent rate increases, not enough cash is coming in to pay off the debts and buy power. Over the next three weeks, deciding how that money gets divvied up to pay the state's debt will be one of the toughest jobs of the year. State Treasurer Philip Angelides said the state Public Utilities Commission would be essentially filling a shoe box with debts and commitments during a series of meetings and workshops this month, and it's going to be a tight fit without raising power bills even more. "The rubber hits the road in the next few weeks at the PUC," Angelides said. "There is a box that has to be filled up, and a no-rate-increase scenario is putting all of these things into this box. It'll be tough work." Under the law, the PUC has the power to essentially determine how much profit the utilities can make. It's a set formula, designed to give the power companies a comfortable margin and to keep power bills reasonable for consumers. But with the 1996 deregulation an utter failure in California, there are many more demands on that money. The utilities claim to be $14 billion in debt. The state of California is spending $45 million a day to buy power. Taxpayers have spent $3.2 billion so far, and the PUC recently said utility customers would be required to pay that money back. Then there is the $10 billion in bonds the state is selling to buy long- term contracts for power. Angelides said the PUC also must guarantee him an estimated $1.3 billion a year from consumers to pay off the bonds, which his office expects to begin selling by the end of May. That money could end up running out by September, or June 2002 under the most optimistic prediction, Angelides said. That could mean California would have to borrow even more money beyond the $10 billion -- money that consumers will most likely have to pay back through their bills. Gov. Gray Davis has said repeatedly that it is his "hope and expectation" that rates will not increase. But he has been criticized for seeming to say that a temporary rate increase approved in January will be made permanent and that a 10 percent rate decrease imposed when deregulation was implemented will be lifted next year. "If I wanted to raise rates, I could have solved this in 20 minutes," Davis said last month. But others are convinced now that rates will go up even more than the 19 percent. And PUC Commissioner Richard Bilas said he thinks the rates should go up before the summer to encourage conservation. 'FUNDAMENTALS DON'T CHANGE' "It doesn't matter what is done in terms of rhetoric, legislation, ideas or proposals at the commission -- the fundamentals don't change," said Bilas, a Republican. "There is not enough supply and too much demand. The only function on the demand side is a rate increase. Otherwise, people won't stop using electricity." Since the state is buying roughly 30 percent of the power used by the utilities -- and at the highest prices so far -- the state should be entitled to an equivalent share of the money coming in from consumers. "If we're going to issue bonds, we must have first (crack at) that money," Angelides said. His office believes that "a failure to (issue bonds) in the appropriate manner will directly and negatively impact consumer rates." Angelides also needs a commitment from the PUC over how the state will get repaid for the money it's spending to buy emergency power the utilities cannot afford to purchase. Bilas said the PUC, which will take up some of these issues at their meeting on Thursday, would have to face reality soon. 'IT'S A BAND-AID' "It's the direction we have been moving in," he said. "We're having to face up to fact that there needs to be rate increase. What is being done isn't a solution to the problem -- it's a Band-Aid." The utilities, among others, are eyeing the money as well for their significant costs. They have accumulated massive debts that need to be repaid, and have investors to satisfy. Also looking for a slice of the pie are the alternative energy producers -- including wind and solar producers -- who depend on payments from the utilities to buy the natural gas they need to operate. These facilities account for nearly a third of the energy produced in California, and any scenario that has the state getting through the summer without significant blackouts requires full operation. "What everybody has told me is this summer is going to be murder, because we don't have enough," state Senate President pro tem John Burton, D-San Francisco, said recently. Three things are occurring that are designed to make sure the money going out to pay for debts and power is slightly less than the money coming in from consumers: Small alternative energy providers are expected to start getting lower payments. Utilities, as part of a state rescue plan still being negotiated, will be required to sell the electricity they generate themselves at cost. The state is signing long-term contracts for its share of power, which reduces demands on ratepayers. The idea is to leave enough headroom that will pay back the state for what it is spending over a long period of time. Angelides said the difference -- that headroom -- should be returned to the state to pay off the debts it incurred from the long-term contracts financed with the bond money and to buy emergency power. STATE WANTS ITS SHARE "We stepped into the breach here," Angelides said. "We're entitled to a fair slice of the pie." Angelides said the new rate schedule, which the PUC is determining this month, should not be used to pay back utilities for any of their debts from before Jan. 17. That's when the state started buying power for the utilities. So far, the utilities are not asking for their past debts to be repaid. Some other financing for those must be developed, such as selling thousands of miles of electrical transmission lines to raise billions of dollars. But there may not be much headroom left to pay off all the other debts. Chris Danforth with the Office of Ratepayer Advocates, which is designed to make sure consumers get a good deal out of the PUC, said the future payments to the alternative facilities and contracts signed by the state were going to cost more than originally planned. That eats up some of the headroom and "is indicative of a rate increase," Danforth said. Paying the Bill Most of what PG&E customers pay for electricity is spoken for but the demands are about to get a lot bigger. . Breakdown of contributors to electricity production PG&E generated power -- What the utility produces at its own plants. Alternative energy -- Electricity generated by solar, wind and biomass companies. Independent generators -- Power produced at non-PG&E plants in California and elsewhere. . PG&E customers currently pay 6.5 cents per kilowatt hour Combined sources of electricity cost 6.134 cents per kilowatt hour This portion represents 0.366 cents of leftover money . Claims on leftover money -- Money owed to the Independent System Operator, which has been forced to buy electricity at very high prices in recent months. -- Money owed to the alternative energy providers. Many of these small units have stopped operating because they have not been paid. -- Emergency power purchases likely to be necessary this summer, since the state has not secured enough long-term contracts to provide all the power it needs. That could drain either the state's coffers, or be paid for by consumers. . Source: Chronicle research Chronicle Graphic E-mail the reporters at rsalladay@sfchronicle.com and lgledhill@sfchronicle.com. ,2001 San Francisco Chronicle ? Page?A - 1
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