California electric rate hike leaves loophole for conservers

In this story: How it breaks down: Bush: No energy price controls Investigations and overcharges RELATED STORIES, SITES

SAN FRANCISCO, California (CNN) -- The California Public Utilities Commission voted unanimously Tuesday to raise rates for California's energy users, but stopped short of approving the exact form the hike will take.

One of the biggest electricity rate hikes in the state's history is aimed at easing the state's chronic power shortages by allowing conservers to pay lower rates than those who use more electricity. It would affect millions of customers of Southern California Edison and Pacific Gas and Electric -- the state's two largest utilities.

The rate hike outraged California consumers.

"We can't sustain this," said Nettie Hogue, executive director of The Utility Reform Network (TURN), which has campaigned against consumer rate increases. "Even if low income customers don't pay it, goods and services are going to increase. The economy cannot sustain this."

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CPUC President Loretta Lynch has said the hike probably will go into effect sometime in May, after a 30-day period to allow comment on how it will be structured and a 30- to 45-day implementation period.

Under the proposal Lynch outlined Monday, rates would go up 3 cents per kilowatt-hour, but low-income residents would be exempt and households that conserve energy might not experience an increase.

Under Lynch's proposal -- which is expected to be approved -- a so-called "normal" power user would see little or no new increases above the 9 percent to 15 percent rate rise approved in early January and already in effect.

How it breaks down:

• Households using less than 130 percent of their so-called baseline wattage would see no increase in rates.

• Households using between 130 and 200 percent of baseline would see up to a 9 percent.

• Households using above 200 percent of baseline would see a 36 percent increase in electricity costs.

A user's baseline rate is a figured at roughly 60 percent to 70 percent of the average normal usage, but is adjusted up or down depending on local climate.

A user in a colder climate is assigned a higher baseline rate in winter; a user in a warmer climate gets a higher baseline rate in summer.

Lynch said the tiered system would encourage power conservation.

The commission, in voting for the rate hike Tuesday, inverted the normal procedure under which a 30-day comment period precedes the vote to implement a rate increase.

Bush: No energy price controls

The plan faced opposition from ratepayers already upset by spiraling energy costs and rolling blackouts caused by electricity shortages blamed on California's attempt to deregulate its electric utilities. Some demonstrators attended the meeting with signs declaring, "We won't pay."

Bush

Regulators imposed rate increases between 9 percent and 15 percent this year and approved a 10 percent increase to take effect next year.

PG&E and SoCal Edison have been reeling from high wholesale power costs because California's deregulation law limits rate increases. The state has been spending more than $40 million a day to keep the power on after wholesalers cut off credit to PG&E and SoCal Edison.

Consumer advocates argue that the commission, Gov. Gray Davis and the Federal Energy Regulatory Commission are not doing enough to bring down exorbitant rates charged by out-of-state power generators.

"The generators should be forced to take lower prices," Michel Florio, a senior attorney for TURN, told The Associated Press. Florio said the state should use its powers of eminent domain to seize the power plants and run them itself.

Lynch cited the Federal Energy Regulation Commission's "failure to act" on energy rates as a major factor in California's continuing crisis.

But President Bush vowed Tuesday never to impose price controls on energy, sending a strong signal to consumers, Congress and energy markets that the rules of supply and demand would prevail -- even if it means dramatically higher energy prices.

"The tests for any energy policy are simple," Bush said. "Does it increase supply and do its incentives encourage conservation? A policy that fails to meet these tests is bad public policy. And that is why this administration does not and will not support energy price controls."

Bush said price controls in the 1970s led to long lines at gas stations that vexed consumers and created an impression of economic weakness.

The administration has said it will support some relief for low-income consumers who may not be able to cope with higher energy prices.

But beyond that, the president said, the solution to the nation's energy woes -- in California and elsewhere -- lay in producing more energy at home.

Investigations and overcharges

On top of rate hikes and payment orders, California regulators say they will investigate utility holding companies to assess any responsibility they might bear for the energy crisis.

Commission audits confirmed that California utilities were indeed distressed and sorely in need of money, but harsh criticism has been leveled at these holding companies for moving money out of the utilities to the parent companies. The companies maintain that their actions are legal and were undertaken solely to protect shareholders.

And last week, California's Independent System Operator -- which runs most of the state's power grid -- reported that electricity wholesalers overcharged state utilities by $5.5 billion over the past 10 months.

"All overcharged, but some excessively and some by moderate amounts," Anjali Sheffrin, the ISO's director of market analysis, told the Los Angeles Times.

The companies denied the allegations, adding they expect the Federal Energy Regulatory Commission will determine their prices were justified.

Reuters contributed to this report.

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