SAN FRANCISCO (CNN) -- The California Public Utilities Commission is expected to approve Thursday a recommended emergency rate increase for financially strapped power companies that say they are struggling in a deregulated market.
That rate increase would raise the average homeowner's monthly energy bill from $60 to $65.40.
The PUC's administrative law judge division recommended Wednesday a 1-cent-per-kilowatt surcharge. If approved, as expected, it will result in rate boosts of approximately 9 percent for residential customers, 7 percent for small business, 12 percent for medium commercial customers and 15 percent for large commercial and industrial customers.
The surcharge is temporary and would be in effect for 90 days. All money generated by the rate hikes would be put into an account controlled by the PUC until an independent audit of California's two largest utilities -- Pacific Gas and Electric Co., and Southern California Edison Co. -- was completed. If the audit determined the companies did not need the money, it would be refunded to customers.
Low-income customers who are eligible for the California Alternate Rates for Energy, or CARE program, will be exempt from any rate increase.
The power companies had requested much bigger rate hikes of up to 30 percent. And both utilities warned that steeper hikes are inevitable -- up to 76 percent by 2003 for SoCal Edison customers.
Utilities claim $9 billion loss
The commission's proposal follows five days of emergency hearings, at which representatives of utilities, consumers, power sellers and the government testified on the financial situation of PG&E and Edison.
Together, the investor-owned utilities claim to have lost $9 billion during the past year. The commission has hired independent auditors to verify the veracity of these and other claims related to the utilities' financial health.
Utility companies said they are struggling in a deregulated market because they have been prevented from passing on the high wholesale costs of electricity to their customers.
Bruce Foster, vice president of SoCal Edison, said customers should help the utility stay out of bankruptcy court.
"I think the customer has to pay the wholesale market price," he said. "We do think, under the law, that we have an entitlement to regain the cost we're paying into the power exchange."
Critic: Energy cartel manipulating prices
Consumer advocates were quick to criticize the rate hike, labeling it a "multibillion-dollar utility bailout."
Harvey Rosenfield, president of the Foundation For Taxpayer and Consumer Rights, predicted more take hikes would come. "This is only the beginning for Californians," he said. "We're going to continue to see increases every 30 to 60 days."
The organization estimated the proposed rate increase, combined with fees consumers have already paid to help utility companies pay off prior debts since deregulation started in 1996, will end up costing every resident of California $950. The group wants the state legislature, currently in a special session examining California's power crisis, to intervene.
Mindy Spatt of The Utility Reform Network called the utilities "rich kids asking for welfare." She added: "We can't permit these electric generators to continue to gouge us. It's less than they are asking for but more than they deserve."
Rosenfield also insists there is no energy shortage.
"There is an energy cartel of companies that is manipulating the supply at any given moment in order to artificially induce massive price increases and get high profits from them," he said.
But regulators concluded that the rate increases are required to offset increases in electricity prices that "defy common sense, logic and law," said Commission President Loretta Lynch.
The decision states that, absent an emergency rate increase, the utilities "may not be able to provide adequate service for their customers without some intervening action on our part."
But one PUC official said the rate hike would not solve the state's power woes. "What we are doing here is an interim order," said Karl Wood with the PUC. "It is not a solution to the problems of rates in California."
Governor: Huge miscalculations led to deregulation
In 1996, California became the first state to deregulate its utilities market. Deregulation required the investor-owned utilities to sell off their generating plants and to buy power from outside wholesalers. Utility executives said 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.
California Gov. Gray Davis says the people advocating the deregulation made "a huge miscalculation. They did not anticipate the recovery that California experienced and the particular needs of the tech-based economy here in California. Secondly, there was no effort to build more (power) plants to meet that demand."
PG&E said last week that a third of the 60 companies it buys power from no longer will sell to the utility unless it has cash in hand.
The utilities admitted a rate increase will not do much to reduce their debt. But they said it would send a strong signal to Wall Street about their financial stability.
The utilities must maintain a good credit rating to borrow money to buy power and avoid rolling blackouts in California.
In recent weeks, California has come perilously close to blackouts and has forced some industrial users to cut back because of dwindling power supplies.
California's growing problems after deregulating power companies are being closely watched across the country because at least 25 other states are considering energy deregulation.
CNN San Francisco Bureau Chief Greg Lefevre, Correspondent Charles Feldman and The Associated Press contributed to this report.
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