PUC backs utilities on consumer rate hikes in California

SAN FRANCISCO - In the strongest sign yet that millions of Californians will soon be paying sharply higher electric bills, state utility regulators Thursday said consumers should pay more to keep the state's largest electric companies from going bankrupt.

''We believe that retail rates in California must begin to rise. It's our intent to maintain the utilities' access to capital on reasonable terms,'' said the Public Utilities Commission, which ordered an independent audit of the utilities' books before it formally decides whether to lift a rate freeze.

PUC Chairwoman Loretta Lynch said the new rate increase - its amount is still unknown - would take effect Jan. 4 and show up on consumers' bills shortly thereafter.

Pacific Gas and Electric Co. said it would raise bills gradually to ''protect the consumers against rate shock.''

With electricity imports slowing to a trickle, managers of the state's power grid declared another ''stage two'' alert Thursday, meaning that power reserves are falling dangerously low, below five percent. Consumers were asked to conserve and some commercial customers were warned that they may have to turn off some power.

In private negotiations with Gov. Gray Davis and other key politicians and regulators, the utilities have asked that customers pay for 20 percent or more of the companies' debt.

Before making any such deal, the PUC wants to confirm just how bad the financial picture is for PG&E and Southern California Edison, which together have taken on more than $8 billion in debt buying energy on the open market, but are constrained by a rate freeze from passing the costs on to consumers. San Diego customers, who are not covered by the rate freeze, have seen their bills double or triple.

The PUC's action Thursday requires the utilities to open their books to independent auditors and financial analysts selected by the commission. The audits were scheduled to begin Friday morning.

''We have a public trust to keep the lights on,'' Lynch said before the commission unanimously approved the plan. ''We need to obtain the facts and we have a legal duty to make sure the facts are accurate.''

The PUC will hold emergency public hearings next Wednesday and Thursday on the utilities' finances, allowing consumer advocates, utilities, and power producers to have their say on the rate hikes.

Consumer advocates say the crisis has been manufactured, and denigrated Standard and Poor's warning Wednesday that the utilities could lose their credit rating and no longer afford to buy power. They likened it to financial blackmail, designed to scare Davis and the PUC into approving higher rates to protect the interests of investors.

''Wall Street seems to think that every time a big company gets into trouble, there has to be a bailout by the customers or taxpayers,'' said Harvey Rosenfield, executive director of the Foundation for Taxpayer and Consumer Rights, a Santa Monica, Calif.-based watchdog group.

Those suspicions were echoed Thursday by Washington Gov. Gary Locke, who accused electric companies of manipulating prices. Electricity that normally costs $30 per megawatt hour is now selling for $500 to $1,200 per megawatt hour, Locke said, while some electricity generating plants in California are lying dormant for unexplained reasons.

''It is pretty obvious there is price manipulation going on,'' said Locke, a Democrat. He said high energy costs are resulting in a ''massive transfer of wealth, not only out of Washington but out of the West.''

The utilities have said plants were taken down for needed maintenance when unusually cold weather hit, but they also argue that construction of new power plants has not kept up with growing demand.

Utah Gov. Mike Leavitt, a Republican, said ratepayers throughout the West can expect to pay more for power - even those who live in states like Utah, which generates more power than it consumes. California ''has a regulatory system that is clearly not working,'' Leavitt said, but the rest of the states in the grid will be affected by it.

''The bottom line is, the market is solving the supply problem,'' Leavitt said. ''We just haven't received the bill yet.''

It wasn't immediately clear if the PUC's action on Thursday was enough to buy the utilities more time with Standard & Poors. PG&E vice president Dan Edwards said the utility expects to hear from the credit-rating agency on Friday.

The political stakes couldn't be higher for Gov. Davis, who has enjoyed high approval ratings but has been accused of failing to take action to avert the energy crisis, which has led to almost daily threats of brownouts and concerns that the state's economy could suffer if the utilities go under.

''He's walking a tightrope,'' said the governor's spokesman, Steve Maviglio. Davis must balance consumer outrage over higher electric bills against the need for the utilities to stay solvent.

Initial reaction from consumers suggests they won't quietly accept the higher bills.

''I think it's ridiculous. I don't think they should have deregulated it in the first place,'' said electrician Lynn Barron, 43, of Fontana, in San Bernardino County. ''It's going to hurt my pocketbook.''

Davis has little power over the energy market - only the Federal Energy Regulatory Commission can set price controls or force energy wholesalers to lock in prices with long-term contracts, two solutions advocated by Energy Secretary Bill Richardson.

But the governor, who has strong influence on the PUC, can sign legislation to re-regulate California's energy market, and use state money to help consumers or bail out the utilities. And even if they do go bankrupt, he could order them to continue providing electricity, with the state stepping in to guarantee their credit.

After the PUC vote Thursday, utility watchdogs expressed skepticism about the audits as well, noting that with combined assets of $71 billion, Edison International and PG&E are major clients of virtually all the Big Five auditors.

''The danger is that the audits become a whitewash of the utilities' cooked books,'' said Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights.

Utility critics contend that the utilities have made billions off their own power plants since 1998 while also profiting from energy market conditions that worked to their advantage until this year. In 1998 and 1999, for instance, PG&E's electricity revenues exceeded its electricity costs by $9.6 billion. So far this year, PG&E has paid $4.6 billion more for electricity than it has received from customers.

Out-of-state energy suppliers worry they too could go under if PG&E and SoCal Edison can't pay them. Arizona's New West Energy, which was powering 600,000 California homes, said Wednesday it was cutting off supplies, although it still would have to sell its excess energy to California under an emergency order from Richardson.

Besides mulling rate increases, Davis and Richardson are pushing for a $100 per-megawatt-hour rate cap on all wholesale electricity sold in the Western states, but other Western governors are wary, and S&P said that proposal won't solve the problem.

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