03/28 15:54 California Rates Won't Solve Crisis, Controller Says (Update1) By Daniel Taub

Sacramento, California, March 28 (Bloomberg) -- California's state controller will release a study today showing that rate increases for customers of PG&E Corp. and Edison International won't cover the state's power-buying costs.

The rate increase of $4.8 billion a year, approved yesterday by the California Public Utilities Commission, is intended to pay for power the state purchases on behalf of PG&E and Edison, owners of the state's two largest utilities.

``All our numbers are showing that's not the case,'' said Lisa Casalegno, spokeswoman for state Controller Kathleen Connell. ``She's done some analysis that this isn't the solution.''

Lawmakers, analysts and others have already warned that rate increases of up to 36 percent for PG&E customers and 27 percent for Edison customers aren't high enough to pay for power purchases by the state's Department of Water Resources. The PUC may need to impose further rate increases, they said.

Connell will release her complete findings during a press conference to be held at 1 p.m. local time in Sacramento, California, Casalegno said.

`Don't Add Up'

An attorney with the PUC's Office of Ratepayer Advocates, the consumer-protection arm of the commission, said he's calculated that an increase of 13 cents a kilowatt-hour would be needed to cover the state's power-buying costs. That's more than four times the rate increase approved yesterday.

``It's becoming clear that more increases will be needed,'' said Jason Zeller. ``The numbers don't add up.''

PG&E's Pacific Gas & Electric and Edison's Southern California Edison have accrued more than $13 billion in losses buying power on the wholesale market. Under California's deregulation laws, wholesale prices fluctuate while the price paid to utilities by consumers was fixed.

The state is buying power on behalf of the two utilities, which are on the verge of bankruptcy. Yesterday's rate increase only covers power purchases going forward, not the utilities' past losses.

California Governor Gray Davis and his advisers are negotiating a purchase of the 32,000 miles of transmission lines owned by PG&E, Edison and Sempra Energy, owner of No. 3 utility San Diego Gas & Electric. The purchase is intended to help PG&E and Edison restructure their debts.

A final agreement with Edison, which reached a tentative agreement with the state last month, is expected soon, said Joseph Fichera, chief executive of Saber Partners LLC and Davis's top financial adviser in the negotiations. That would be followed by agreements with PG&E, then Sempra, he said.

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