In the News: Recent Developments

July 23, 2001

State consultants don’t see need for more rate hikes Outlook brightens; price cut may be possible by 2003



SACRAMENTO — State consultants, releasing a new estimate of power costs with an improved outlook, said yesterday they do not believe an additional rate increase will be needed — and a rate cut may be possible by 2003. The state issued a long-awaited “revenue requirement” asking for a little more than half of the revenue from a record rate increase imposed by the state Public Utilities Commission earlier this year.

The state began buying power for utility customers Jan. 17 after PG&E and Edison, whose rates were frozen by deregulation as wholesale power costs soared, ran up massive debts and were no longer able to borrow.

The consultants estimated that the state will have spent $13 billion on power by the end of next year. But they also predicted that the state power-purchasing fund would develop a substantial surplus by then.

“That would allow for a rate decrease in 2003, based on our current projections,” said Joseph Fichera of Saber Partners

The new revenue requirement issued by the state yesterday is needed for a series of actions planned by the PUC next month to pay for a record bond issue to repay the taxpayer-supported state general fund for power purchases.

Fichera said that, despite reports to the contrary, the recommendation is for a $12.5 billion bond — leaving a cushion in the authorization of $13.4 billion. The bond will be paid off by ratepayers over 15 years.

The consultants said their projection of state power costs is cautious. They assume consumer conservation will drop from 7 percent to 6 percent, though it actually has been 11 percent and 12 percent in recent months.

The projections are intended to leave some ability to absorb unforeseen costs, such as scorching temperatures later this summer or next summer, or a spike in natural gas prices as happened last winter.

The cost projections do not include any overcharge refund from generators. Davis has asked federal regulators for an $8.9 billion refund and has vowed to seek full recovery in the courts.

The governor wants to get the state out of the power-buying business by the end of next year. But that requires legislative approval of a rescue plan for Edison that could become a model for getting PG&E out of bankruptcy.

The Senate, which left for a monthlong recess after approving a state budget early yesterday, approved an Edison rescue plan that the utility says is too weak to restore its ability to borrow.

The Assembly is struggling with two competing Edison rescue plans. Talks may continue during the recess in an attempt to reach an agreement before the Aug. 15 deadline set by Davis to reach a deal to keep Edison out of bankruptcy.

The consultants say there is enough room in the existing rates to give the two utilities a revenue stream for bonds to pay off their debts — 0.4 cent per kilowatt-hour for Edison and 0.7 cent for PG&E.

Fichera said he disagrees with speculation that falling power prices and the rate increase might give Edison enough revenue to avoid bankruptcy without a legislative rescue plan.

To pay off Edison’s $3.5 billion debt, he said, $2 billion would come from the bond, but $1.5 billion would have to come from the sale of Edison’s transmission system to the state under the governor’s plan.

Copyright 2001 Union-Tribune Publishing Co.

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