California regulators approve $5 billion rate hike

SAN FRANCISCO, California (CNN) -- Brushing aside the chants of angry protesters and predictions that they were about to plunge the state in recession, the California Public Utilities Commission voted 3-2 Tuesday for a $5 billion rate hike plan that protects more than 60 percent of the state's residential customers from higher power bills.

The rate hike comes on the same day a national power supply group reported that Californians could face an average of 16 hours of rolling blackouts each week from June through September due to electricity shortages.

While low-income residential users and those using small amounts of power will be protected from the rate hikes -- amounting to more than 60 percent of the state's residential customers -- those who don't conserve power will face steep hikes beginning in June, averaging more than 47 percent.

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Business users will also face higher prices, starting at about 18 percent for agricultural users and rising up to 50 percent for industrial firms. Those higher rates will apply to all non-residential customers, regardless of how much they use.

The CPUC also took a slap at the federal government by voting to pass on the full cost of rising wholesale electrical prices for power used by federal facilities. California officials have been critical of the Bush administration for refusing to push for caps on those wholesale hikes.

However, several commissioners expressed reservations about that action and said they might revisit it. Commissioner Richard Bilas, a Republican appointee, said it was unconstitutional "partisan mudslinging" that could prompt the closing of military bases in the state.

CPUC President Loretta Lynch, who proposed the rate hike plan approved Tuesday, said it would "balance the inequities" caused by the wholesale price hikes, as well as encourage conservation by residential users this summer as the state faces blackouts.

The broad outline of the rate hike was approved by state regulators in March to help bail out the state's two largest utilities, Pacific Gas and Electric and Southern California Edison, who have been caught in a squeeze between escalating wholesale prices and the rates they can charge customers. The measure approved Tuesday outlines specifically who will pay more.

The two members of the commission appointed by Republican governors said the new price hikes on businesses and industrial users will drive many of them out of the state and provoke what one termed "a recessionary spiral." And they said protecting most consumers from higher prices will discourage conservation, rather than encourage it.

"It is, in essence, a hidden tax on all non-residential users," Bilas said. "What we have here is an economic recipe for disaster."

But Commissioner Carl Wood defended the decision to protect most consumers from rate increases, saying that they are "least able to deal with the hardships." He said state law required the commission to exempt residential customers whose monthly usage falls below 130 percent of a set baseline amount, which varies depending on where they live.

However, protesters in the audience opposed to any rate increase for consumers heckled the commissioners, forcing a short delay at one point while one woman was ejected. Demonstrators chanted "shame, shame" and called on commissioners to take over the power plants themselves.

Shouting over the crowd, Commissioner Geoffrey Brown, an appointee of Democratic Gov. Gray Davis, who supported the rate hike, said, "We cannot put our head in the sand. We cannot pretend this is a problem we don't have to face."

Overall, the rate hikes approved are slightly higher for PG&E customers, in northern and central California, than for those served by SCE, which covers the southern and central regions of the state.

A user's baseline rate is a figured at roughly 60 percent to 70 percent of the average normal usage, but is adjusted up or down depending on local climate. A user in a colder climate gets a higher baseline rate assigned in the winter; a user in a warmer climate gets a higher baseline rate assigned in the summer.

PG&E customers will see an average rate increase of 54.5 percent for power use that is more than 130 percent of their baseline. For those served by SCE, the average increase will be slightly less, 47.4 percent.

Agricultural users will see rate hikes of 18-19 percent; industrial users, 49-50 percent; and commercial users, 36-41 percent, according to CPUC calculations.

As Californians contemplate higher electric bills, the North American Electric Reliability Council -- a power producers' group based in Princeton, N.J. -- forecast Monday that there could be 260 hours of rolling blackouts in the state this summer, from June through September.

That would be an average of about 16 hours a week, although there is no way to predict when they would occur or how long they would last.

Aggravating the situation in California is an extreme drought in the Pacific Northwest, which is expected to reduce hydroelectric power generation.

"We expect that utilities in the Pacific Northwest will be able to serve all of their [power] demands this summer, but they will not have electricity available to export to California and elsewhere," said Michehl Gent, NERC president and CEO.