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PUC Approves Cut in PG&E Electric Rates by David R. Baker San Francisco Chronicle, February 27, 2004

Average 8 percent drop retroactive to first of the year

Pacific Gas and Electric Co.'s customers will see their electric bills drop an average 8 percent next month under a plan approved by state regulators Thursday, marking one of the final steps in the state's emergence from a painful lesson in energy deregulation.

Sounds sweet. Except the average rate will still be about 28 percent higher than it was before California's power experiment began.

The cut approved by the California Public Utilities Commission will wipe out some -- not all -- of the increases imposed during the 2001 power crisis, which triggered blackouts and forced PG&E into bankruptcy.

Although other reductions are in the works, Californians will continue to pay elevated prices for years, as the state works through long-term power contracts signed during the crisis.

Of course, deregulation was supposed to lower energy bills already considered too high.

"The California deregulation experiment was probably one of the greatest man-made disasters in economic history," said Mike Florio, senior attorney for The Utility Reform Network watchdog group.

PG&E applauded the approved rate cut. Tom Bottorff, the utility's vice president of customer services, said that for many customers, energy prices after the cuts will be similar to where they would have been if rates had climbed with inflation for the last eight years, rather than rising and falling with deregulation and the energy crisis.

"The end result is not much further than where we would have been if we'd just let rates rise with inflation," he said.

The cut approved Thursday knocks PG&E's average rate down to 12.78 cents per kilowatt/hour, compared with 13.90 cents right now. The reduction will be retroactive to the start of the year but will first appear on bills in March, with customers receiving a one-time credit for power used in January and February.

The cut will have its greatest effect on business customers, who bore the brunt of surcharges levied during the crisis. Their rates will drop from 9 to 15 percent. Residential customers, in comparison, will see just a 4 percent cut. In other words, that's about $4 on a $100 bill.

When former Gov. Pete Wilson signed deregulation into law in 1996, the move was supposed to cut the state's electricity rates, with residential and small-business customers promised a 20 percent reduction by 2003.

For awhile, it worked. Rates at PG&E, which covers most of Northern California, dropped from an average of 10 cents per kilowatt/hour before deregulation to 9.42 cents after.

The drop didn't last. By the summer of 2001, market manipulation joined with a rickety infrastructure to cause power shortages, blackouts and a general crisis. The utility's average jumped to 13.90 cents per kilowatt/hour. It has stayed there until Thursday.

The new rates approved Thursday will leave residential customers paying 5. 7 percent more than they did before deregulation. Mid-size businesses will pay 41.9 percent more than they did at the start of 1996.

Under the new rates, PG&E customers will still pay more for power than many people elsewhere. The average for Southern California Edison customers, for example, is about 12.4 cents per kilowatt/hour, according to the utilities commission.

The nationwide average is even lower. The most recent monthly figures from the U.S. Department of Energy, from last October, show a national average of 7.38 cents per kilowatt/hour.

PG&E rates will likely come down further, possibly this year.

The company wants refunds from power suppliers accused of overcharging during the crisis, money that could be used to lower rates. Williams Cos. agreed to a $75 million refund earlier this week, and PG&E could receive roughly $800 million more in cases under consideration by federal regulators.

"That's potentially a large amount of dollars that could be returned to us," Bottorff said.

The utility also wants to refinance part of its plan to re-emerge from bankruptcy, which could lead to cost savings, Bottorff said.

But the foreseeable changes will knock just another penny from the average rate, said Kevin Coughlan, a program manager with the state utilities commission's energy division. Beyond that, substantial cuts can come only when the state renegotiates the long-term contracts inked during the crisis -- or when they expire.

"The big driver, which dwarfs all the others, is the cost of power from the state contracts," Bottorff said.

State utilities Commissioner Loretta Lynch also pins high rates on PG&E's plan to emerge from bankruptcy. The plan, she said, ensures substantial profit for the utility and gives the state little leverage to press for rate reductions.

Compared with the bankruptcy plan and the long-term power contracts, every other potential savings is minor, Lynch said.

"We're going to nibble around the edges and save $10 million here, $50 million there," she said.

PG&E electric rates as set by the state
The average cost of electricity from PG&E has risen 28 percent from California's pre-deregulation levels.
Dates are when price (in cents per killowatt/hour) became effective.
Jan. 1, '96   10.0  cents
Jan. 1, '98    9.4  cents
Jan. 4, '01   10.4  cents
June 1, '01   13.9  cents
Jan. 1, '04   12.78 cents