California commission to vote on utility rate hikes Thursday

In this story: Commission called emergency hearings California first state to deregulate utilities RELATED STORIES, SITES

From CNN Producer Rachelle Reinhart

SAN FRANCISCO, California (CNN) -- Pacific Gas and Electric Co. officials say their plan to raise gas and electricity prices as much as 40 to 45 percent over one year is the only way to head off blackouts and disasters.

In the third day of emergency hearings before the California Public Utilities Commission on Friday, PG&E's Director of Business and Venture Planning Walter Campbell said an immediate 26 percent average rate increase would reassure creditors and the capital market of the company's solvency.

"We are quite certain that it is going to be significantly less economically disruptive than either power outages or gas delivery curtailments," Campbell said.

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PG&E said it would normally borrow for short-term debt in the commercial paper market, which requires a very strong credit rating and cash backing the company says it doesn't have.

"In some cases, we're having trade gas suppliers right now who will not sell us natural gas for January," Campbell said.

When asked what type of collateral they want, Campbell replied, "Immediate cash. They want cash."

Even though the proposed rate hike "would not meet the cash deficit," Campbell said, "at least we have a chance of buying in the short-term."

If PG&E's five-year Rate Stabilization Plan is approved by the PUC, residential customers in Northern California would see a 21 percent increase in their gas and electric rates. The combined residential and commercial average increase would be 26 percent.

Commission called emergency hearings

PG&E also is asking for two "trigger" points to be set, with price increases to go into effect if wholesale energy prices remain high. This would mean increases of up to one cent per kilowatt hour, or a total 39 percent increase for residential customers over the course of one year, and an increase of 45 percent or more overall.

The PUC had decided earlier to allow a rate increase -- of undetermined proportion -- for PG&E and SoCal Edison, private companies serving 10 million customers. The commission called for the emergency public hearings and intends to issue orders after voting on the matter in a business meeting Thursday.

"PG&E has been paying out tremendous amounts of dollars for power costs to out of state generators and we have undercollected over seven -- nearly seven -- billion dollars compared to what our ratepayers are paying. And for our financial survival, we need simply to be able to finance the costs of that power," said PG&E Chief Counsel of Regulatory Affairs Chris Warner.

"We believe that the wholesale power market is broken. Out- of-state generators are charging us outrageous prices. We don't make a profit on the power we buy from out-of-state generators. We are basically paying out 15, 18, 40 cents a kilowatt hour and we're only allowed to collect about a nickel from our customers."

California first state to deregulate utilities

California was the first state to deregulate its utilities market in 1996. Deregulation required the California utilities to sell off their generating plants and to buy power from outside wholesalers.

The utilities say this year's higher natural gas prices, dry weather conditions in the Pacific Northwest, and an unusual number of plant maintenance outages contributed to high energy costs.

The utilities say recent wholesale price spikes have left them $9 billion in debt.

But critic Doug Heller, of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, said earlier this week that he doesn't believe the companies' insolvency pleas.

"This is just part of a demand for more rate increases. They are using it as an excuse," Heller said.

Southern Edison is suing the Federal Energy Regulatory Commission for not guaranteeing that wholesalers sell power at the "just and reasonable" prices required by law.

"We're hopeful that the PUC will recognize that PG&E needs help in order to continue providing service to our customers and will provide some increase in rates that will send a message to the capital markets, allow us to continue borrowing, allow us to collect enough cash in order to continue the service that our customers need," said Warner.

The Associated Press contributed to this report.

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Pacific Gas and Electric Co.
Southern California Edison
California Public Utilities Commission
The Foundation For Taxpayer & Consumer Rights (FTCR)
Federal Energy Regulatory Commission (FERC)

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