California faces new electric shortages By Myra P. Saefong, CBS.MarketWatch.com Last Update: 4:07 PM ET Mar 28, 2001

FOLSOM, Calif. (CBS.MW) - California's grid operator declared another power emergency Wednesday and said the state needs to boost its electricity conservation methods to avoid forced outages.

The California Independent System Operator declared a "Stage Two" emergency power alert, asking utility customers to voluntarily reduce their use of electricity "to prevent more severe curtailment measures."

More than 11,000 megawatts of power were offline because of generation unit maintenance, the Cal ISO said in a press release Wednesday. A single megawatt is enough energy to power about 750 to 1,000 homes.

The power alert, which is in effect until midnight, enables the power grid operator to access emergency resources that will help it maintain operating reserves. The Cal ISO has asked the state's investor-owned utilities to implement voluntary load curtailment programs. The program provides participants with a discounted rate in return for their cooperation during power shortages.

California suffered from forced blackouts on March 19 and March 20, due in part to the fact that some small independent generators have had to shut down for lack of funds.

Southern California Edison (EIX: news, msgs, alerts) and Pacific Gas & Electric (PCG: news, msgs, alerts) have failed to fully pay the generators, also known as qualifying facilities, for power supplies since late last year. Both utilities suffer from billions of dollars of debts from buying wholesale power on the open market that they must supply to customers at rates capped by state regulators. See related story.

In order to address the shortage of power from the generators, the state's Public Utilities Commission passed an order forcing the utilities to pay qualifying facilities within 15 days of energy deliveries. See full story.

Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

http://www2.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B6172141C%2D6480%2D4D0D%2DAEA3%2D8A1C7BD96129%7D

-- Cave Man (caves@are.us), March 28, 2001

Answers

Utilities may be worse off after rate hike PG&E to challenge regulators' accounting decision By Myra P. Saefong, CBS.MarketWatch.com Last Update: 3:11 PM ET Mar 28, 2001

SAN FRANCISCO (CBS.MW) - In spite of a record rate increase approved by California regulators Tuesday, the state's cash-strapped utilities may actually be worse off financially because of the adoption of a little noticed accounting measure, the companies say.

On Tuesday, the California Public Utilities Commission voted to increase retail electric rates by nearly 50 percent. But in addition, the commission adopted a consumer group's proposal that a rate cap preventing the utilities from charging market rates for electricity should be extended.

The confusing action means that most if not all of the money from Tuesday's rate hikes will go to pay California, which has been buying power on behalf of the utilities, and to pay independent power producers, who have received little or nothing for power they've sold the utilities during the power crisis.

At the same time, the portion of electric rates that Southern California Edison and Pacific Gas & Electric Co. actually receive from ratepayers will remain frozen for months or years longer than expected.

The CPUC attempts to "completely change the ratemaking rules that are used to determine the end of the rate freeze under AB 1890," Pacific Gas & Electric's CEO Gordon Smith said in a statement, referring to the original deregulation law.

Smith said the action "artificially" extends the rate freeze and that the PG&E-owned utility will "challenge this and other aspects of the decision."

The accounting change covers a complicated arrangement in California's original deregulation plan. Under the law, utilities were allowed to recover so-called stranded costs of investments made in power plants while they were regulated.

The theory was that those investments would be rendered uncompetitive once competition began and power rates fell. While that was true for the first few years of deregulation, eventually electricity surged in value, making even the oldest and most inefficient plants competitive.

But by adopting the consumer group Toward Utility Rate Normalization's accounting proposal, the commission found that the utilities must still recover billions of dollars in "stranded costs" before rates can be unfrozen.

Souther California Edison said the accounting change "would only serve to add complexity and uncertainty at a time when the opposite is required to restore the confidence of the financial community."

The utility also said that while it agrees with the commission that the time has come to pay the state's power bills, measures still need to be taken to "clearly give utilities the tools to do so."

The commission's action Tuesday also did nothing to address the $13 billion in debts the utilities say they ran up buying power on the wholesale markets last fall before the state stepped in to buy electricity on their behalf.

Under the rules of three-cent per kilowatt-hour rate hike plan passed by the CPUC Tuesday, the extra revenue received by the utilities must go toward paying the state and other debts going forward and cannot be used to address the issue of undercollected costs.

Undercollections for Pacific Gas & Electric and Southern California Edison total more than $13 billion because the utilities are forced to pay for power on the open market well above what they received under state-capped retail rates.

The state legislature will still need to address this issue, Barry Abramson, an analyst at UBS Warburg said in a research note Wednesday, noting that the higher rates are expected to raise revenues for SoCal Edison by about $2.3 billion a year and for PG&E by about $2.5 billion per year.

CPUC President Loretta Lynch said the rate hike order gives the utilities the right to collect the funds immediately, but that customers won't see the increase until the commission designs new rates. See full story.

The rate increase are "an admission by the CPUC that wholesale power prices are not likely to decline by enough to allow a 'global settlement' to take effect that protects retail customers from the higher costs of electricity," Abramson said.

Shares of Edison International (EIX: news, msgs, alerts) , the parent of Southern California Edison, fell by 46 cents to trade at $13.70 in recent action. Shares of PG&E Corp. (PCG: news, msgs, alerts) , parent of Pacific Gas & Electric Co., last traded at $13.44, up 24 cents.

Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

http://www2.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid =yhoo&dist=yhoo&guid=%7B881C9272%2D4E39%2D4554%2DA999%2DBC0DA45F001B%7 D

-- Cave Man (caves@are.us), March 28, 2001.