Edison, PG&E; Seek to End Rate Freeze

In their boldest step yet to recover more than $5 billion in electricity costs from customers, Southern California Edison and Pacific Gas & Electric are asking state regulators to end the electricity rate freeze for residential and small-business ratepayers and to set higher, stabilized rates.

In filings made late Wednesday with the California Public Utilities Commission, the two utilities said they are not asking that their customers pay free-market rates, as happened this summer in San Diego and south Orange County. There, bills doubled and tripled until state legislators capped rates in August. Wholesale electricity prices remain high despite a return to cooler weather.

Instead, SCE, a unit of Edison International in Rosemead, said it is suggesting a five-year rate stabilization plan to protect customers that would include “a modest energy rate increase” beginning in January of less than 10%.

Pacific Gas & Electric, a unit of PG&E; Corp. of San Francisco, proposed a similar plan that would smooth electricity price volatility while allowing the utility to recover its electricity costs, but didn’t specify how much rates would rise.

The rate increase would eliminate the need to back-bill customers for high wholesale electricity costs, which since at least June have exceeded the amount that the utilities can collect from their customers. That amount of electricity “undercollections” totaled $2.4 billion for SCE and $2.9 billion for PG&E; at the end of September.

But the increase would wipe out the savings promised to small customers under electricity deregulation, and these ratepayers presumably would continue to pay a fee on their bills each month until 2007 to cover payments on the bonds that were used to finance the 10% discount they have been getting since rates were frozen in 1998.

The Wednesday filings were formal statements that the utilities intend to make Friday at a PUC hearing on whether the utilities should be allowed, after the end of the current rate freeze, to bill ratepayers for uncollected electricity costs that piled up during the rate freeze.

“What is needed is the clear confirmation from the commission that SCE will be permitted to recover its reasonable procurement costs over a reasonable period of time. Otherwise, the utilities will be lurching from quarter to quarter with great uncertainty about their ability to finance electricity procurement for customers,” SCE said in its filing.

SCE and PG&E; executives have said their utilities face bankruptcy if they cannot recover these electricity costs.

A San Francisco-based consumer advocacy organization called the Utility Reform Network contends that the utilities should be forced to pay off these electricity costs using revenues they are making elsewhere, including through the sale of electricity.

The utilities’ filings broadcast “a sense of absolute entitlement with the only question being how long will it take ratepayers to give them all this money,” said Robert Finkelstein, an attorney with TURN. “They want to bully their way through to collecting as much money as possible.”

SCE and PG&E; told the PUC that as of August the utilities had amassed enough credits through the proposed sale of assets or the valuation of hydroelectric properties to pay off their remaining “stranded assets”--investments such as nuclear plants that became uneconomical under deregulation.

Assembly Bill 1890, the landmark 1996 law that restructured California’s electricity industry, gave the state’s three big investor-owned utilities the opportunity to recover 100% of their stranded assets by March 31, 2002. The law also froze electricity rates for residential and small-business customers until March 31, 2002, or until SCE, Pacific Gas & Electric and San Diego Gas & Electric paid off their stranded costs.

SDG&E;, a Sempra Energy subsidiary, paid off its stranded assets more than a year ago, and when electricity prices soared this summer, so did their customers’ bills. SCE and PG&E; argued in their filings that they should be at risk only for the recovery of stranded costs, not for operating costs such as buying electricity for customers.

The utilities also proposed several market reforms and asked for greater authority to sign long-term electricity contracts.