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NEWS RELEASE
Jan 01, 2000

Rising debt could mean rate hike for SDG&E

SAN FRANCISCO -- San Diego Gas & Electric Co. may seek an increase in the electricity rates that were capped last summer, citing soaring wholesale prices that are causing an "alarming" increase in its debt.

SDG&E President Debra Reed said a projected debt of $420 million by the end of this month will be recalculated because the utility is paying far more for electricity than it can charge customers under the rate cap.

The debt, known as undercollection, is growing so fast that SDG&E might find itself in the same plight as the state's two largest utilities, Reed told the state Public Utilities Commission yesterday.

The commission is holding an emergency two-day hearing on a request from Pacific Gas & Electric Co. and Southern California Edison Co. for a rate hike as soon as Jan. 4 to avoid what those utilities say could be bankruptcy and possible blackouts.

Reed said SDG&E is preparing to ask the state regulatory agency for permission to begin amortization of the undercollection, paying it off over time, in addition to "other measures to contain these huge balances."

She declined to reveal details of the proposal but acknowledged, "If it requires a rate increase, then yes, we will look at that."

The failure of a state electricity deregulation plan enacted four years ago shocked SDG&E customers, the first to be deregulated, when rates doubled and tripled last summer as wholesale power providers began charging much more.

Gov. Gray Davis signed legislation in September that rolled back rates for SDG&E customers and capped them at 6.5 cents per kilowatt-hour. But the question of who must eventually pay the difference between what SDG&E pays wholesalers and what it can charge customers was left unanswered.

Davis met with President Clinton yesterday to talk about the power situation, but the White House conference did not lead to immediate answers.

"I think it's going to be a good two years before we can have enough additional supply to balance out demand. When we have that, deregulation may work," Davis said after the meeting.

SDG&E's debt is being recorded in a "balancing account." One of the provisions of last summer's legislation allows the Public Utilities Commission to adjust SDG&E rates to keep the debt from growing too large.

Reed also told the regulatory agency that SDG&E was renewing its request to give customers the option of paying uncapped rates. She said many customers say uncapped rates would encourage energy conservation and allow people to avoid paying off the debt later with interest.

"These customers simply do not want an artificial low rate today at the expense of huge, unknown liabilities later on," Reed said.

Michael Shames of the Utility Consumers' Action Network in San Diego said SDG&E's proposal is not unexpected.

"I am actually surprised that they had not yet filed some increase (request), because they are undergoing the same pressures as Pacific Gas & Electric and Southern California Edison," he said.

A consumer group drafting an initiative for the 2002 ballot that would create a state-owned utility system warned of trouble if Edison and PG&E win a rate increase.

"Let it be very clear there will be hell to pay if the Public Utilities Commission and Governor Davis raise rates," Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica told the commission.

The Utility Reform Network in San Francisco wants the regulators to use an accounting system that offsets the massive debt of the utilities with profits from their power plants and money made when rates were artificially high during the early years of deregulation.

Heller goes further, contending that profits made by the parent companies of PG&E and Edison should also be counted as an offset to the debt of the utilities.

But profits turned to massive losses earlier this year when the wholesale price of electricity soared far beyond the frozen rates that PG&E and Edison are allowed to charge under deregulation.

Now the combined debt of the utilities, previously reported at $8 billion, is expected to reach nearly $12 billion by the end of the month.

PG&E is seeking a 26 percent average rate increase, with lower amounts for low-income customers, and Edison is seeking a 30 percent increase.

Without a prompt rate increase, the two utilities told the regulatory agency, they will be unable to borrow the additional money needed to continue to buy electricity.

Stephen Pickett, a Southern California Edison vice president, told reporters that the 10 percent rate increase Davis reportedly offered in closed-door negotiations last week would be inadequate and could lead to rolling blackouts.

"We will be unable to obtain new credit, and it will be only a matter of time before our available cash will be exhausted," Pickett said.

Edison asked a federal court in Washington, D.C., this week to order the Federal Energy Regulatory Commission to cap runaway wholesale electricity prices. PG&E will file a similar petition.

And as if to underscore the crisis, electric bills from SDG&E hit a record high this week of 24.9 cents per kilowatt-hour, compared with a cost of 3.7 cents one year ago.

The latest increase pushed a typical San Diego County homeowner's total electric bill to about $160, compared with about $50 last year. Under the state's deferral plan, however, consumers pay 6.5 cents per kilowatt-hour for now and won't face payment of the balance until the end of 2002.

An SDG&E spokesman said bills were expected to rise even higher next week.

The pain of California's high power prices continues to translate into record gain for energy providers.

Williams Cos., a Tulsa, Okla., company that is a major California electricity trader, said it expects fourth-quarter profits to exceed analysts' estimates. The company issued the earnings projection statement to allay shareholder fears that credit problems for California utilities might jeopardize the company's profits.

Meanwhile, a decision in Goldendale, Wash., might add some more power to the Western grid. Golden Northwest Aluminum Inc. is cutting production at two plants because of high electricity prices, the third aluminum manufacturer in the Pacific Northwest to announce a closure or curtailment this month.

The two smelters use 250 to 300 megawatts of power, and consumption would drop to 50 megawatts under the plan proposed Tuesday.

The cutbacks could help ease the regional energy shortage by allowing the Bonneville Power Administration to resell the smelters' share of electricity on the open market -- a move praised by union, state and federal officials.



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