Governor OKs Rate Relief, Power Plants

SACRAMENTO — Gov. Gray Davis signed two bills into law Wednesday that will accelerate the construction of new power plants and drop San Diego electricity rates by two-thirds--but delayed a decision on a third measure to reimburse utility customers there.

The two new laws, which take effect immediately, are designed to soothe economic pain from California’s deregulation experiment and to increase electricity generation so that next summer’s heat waves do not bring on blackouts and price spikes.

SDG & E’s 1.2 million customers, including about 100,000 in south Orange County, are the first Californians to bear the full cost of electricity under a 1996 law that lifted electric utility regulation in favor of the free market. Lawmakers promised cheaper electricity, but bills have doubled and tripled in San Diego.

“It has actually made people physically ill and depressed,” said state Sen. Dede Alpert (D-Coronado), who wrote the bill to cap rates, AB 265, with Assemblywoman Susan Davis (D-San Diego).

The governor gave no indication of whether he will sign a third bill that would use $150 million of taxpayer money to bail out San Diego Gas & Electric and its customers under certain conditions.

“I’m going to deal with that a little later in the month,” he said. “There is no sense of urgency associated with the other bill.”

Republican lawmakers criticized Davis’ hesitation to sign the third bill, AB 1156, which would earmark state funds for SDG & E and its customers.

“This was sent to him as part of a package intended to bring genuine relief to the ratepayers,” said Assembly Minority Leader Scott Baugh of Huntington Beach. He called the law “nothing more than an artificial reduction in prices” because it forces San Diegans over time to bear the full cost of this summer’s rates, which are today four times higher than at the same time last year.

That’s something that at least one SDG & E customer understands--and doesn’t like.

The new law “does nothing except defer until later, complete with interest, all the money we have to pay,” said Nan Ericson, a retired teacher who lives in the resort town of Borrego Springs, where temperatures commonly reach 110 degrees in the summer and some residents’ monthly electricity bills recently exceeded their rent. Ericson paid a $688 electricity bill in August.

The law sets SDG & E electricity rates for homeowners, schools and all but large businesses at 6.5 cents per kilowatt-hour, compared with the current wholesale price of 21 cents. The rate is retroactive, so that consumers should be credited on their next month’s bill for the higher costs they paid in June, July and August.

The new rate lasts until the end of 2003 and may be lowered or raised every six months by the Public Utilities Commission.

SDG & E must borrow to cover the difference between what it collects from customers protected by a rate cap and what it pays for wholesale electricity. Estimates of how much the utility will have to borrow by the end of 2003 range from $100 million to more than $800 million. Customers eventually will bear the cost of repaying that debt.

After suggesting for weeks that the rate relief bill would scare away Wall Street investors, SDG & E executives learned Wednesday that Moody’s Investors Service has warned it may downgrade the utility’s credit rating. Such a step would force the utility to pay higher interest rates when it borrows money.

Besides expressing worry about SDG & E’s potential debt, Moody’s said that its warning “also incorporates the unsettled nature of deregulation within California.”

That cloud of uncertainty also covers Southern California Edison and Pacific Gas & Electric Co., which have absorbed more than a billion dollars in losses this summer because their nearly 9 million customers pay a rate for electricity that was locked in by the Legislature in 1996. That rate freeze lasts until March 2002 at the latest. The two utilities have been scrambling to find ways to cover their losses.

The governor said Wednesday that more legislation probably will be needed to fix the flaws in California’s fledgling wholesale electricity market.

Energy producers explain this summer’s high-priced electricity with the law of supply and demand. In the last decade, no major power plants have been built in California while population growth across the West has sucked up any regional surplus.

The second bill signed by Davis, AB 970, aims to ease that shortage. Written by Assemblywoman Denise Ducheny (D-San Diego) and Assemblyman Jim Battin (R-La Quinta) and endorsed by some environmentalists and utilities, it creates a “green team” to help energy producers meet their environmental, public safety and other obligations under California law. The law also seeks to cut to six months a review process for new power plants that now takes a year.

Not every power plant proposal will qualify for the fast-track process, said Energy Commission Deputy Director Bob Therkelsen. Best candidates are those that involve existing power plant sites without endangered species concerns or a need to use massive amounts of water for cooling.

Such regulatory streamlining, he said, ideally will give California a few hundred additional megawatts of electricity by June 2001. On hot days the state falls several thousand megawatts short of peak demand.

Ducheny’s bill also aims to shave that demand. It gives the state $50 million to distribute to cities, counties, water districts, private businesses and others to coat roofs with heat-reflective paint, install efficient water pumps and link commercial buildings, via the Internet, to the shifting price of electricity so that when prices soar lights automatically dim and air conditioners curb demand.