portage-
I see PGE was making out like a bandit while the rate caps were artificially "high" until supply looked to be running short (which mysteriously coincided with all those plants going off-line in Nov. and heavy handed market manipulation?) and then suddenly became artificially "low."
Little wonder users feel screwed. Even more amazing that this "dereg" deal passed with nary a dissenting vote from either party.
From Oct. before things really got bad--
sfgate.com
...The roots of deregulation go back to the mid-1990s, when large industrial users seeking lower electricity rates began lobbying for it.
Then when deregulation of the state's energy market actually began in 1998, a new day was envisioned: Utilities would no longer generate their own power or have monopolistic control over the markets they supplied. Instead, they would serve as conduits for customers, who would be able to choose a power supplier with the most competitive price.
But that vision has gone haywire in recent months. There is a limited amount of electricity generated in California, and the competition that was expected turned out to be anemic.
The state's big utilities - including PG&E and Edison International of Rosemead, Los Angeles County, which operates Southern California Edison - have taken on mountains of debt to cover costs they have not been able to pass on to customers because of rate caps, which were imposed by law when deregulation began to take effect.
However, these conditions have not been completely detrimental to the companies' financial picture.
For example, PG&E and regulators dismissed the company's Diablo Canyon nuclear power plant near San Luis Obispo as an inefficient albatross as deregulation approached.
Now, though, the high wholesale prices set by the market have enabled it to fetch the same rates that other generators receive, providing the company with hundreds of millions of dollars in revenue.
Other PG&E power production units also are taking in unforeseen revenues, as are its unregulated energy commodity trading desk. That desk acts as middleman, or broker, buying power from generators and selling it to state system operators, who in turn provide it to utilities.
Furthermore, those revenues are reaching the point where PG&E will be able to ask regulators for an end to customer rate caps that, while slightly artificially high in the last couple of years, are now vastly artificially low.
And, through a complex accounting process that is part of deregulation, the revenues also will enable PG&E to argue that customers should be liable for some or all of the debt it has assumed while the rate caps are in place.
That argument will face an uphill battle before the California Public Utilities Commission, which has scheduled a hearing for Oct. 19.
The current situation - and the utilities' posture - is setting up a couple of key decisions that will have to be made in the near future:
One is whether utilities like PG&E should be able to pass on their debt.
The other is how to determine when the utilities have met the requirements for moving to a fully deregulated market environment.
The situation even appears to be putting Pacific Gas and Electric Co. at odds with the stated policy of its parent. Although the utility last week asked for wholesale electricity rate caps to be lowered to $100 a megawatt hour - or 10 cents a kilowatt hour - to limit the possibility of future rate shocks to itself and its customers, a carefully worded statement by the parent company last June said: "PG&E Corp. as a general matter of practice does not support rate caps."
It went on to say, however, that the unique lack of competition for wholesale energy in the California marketplace merited temporary price caps until stronger competition emerges.
A precise accounting of the utilities' revenue has not been calculated, though it is quickly gaining the attention of ratepayer advocates and regulators. Last week, an administrative law judge, Angela K. Minkin, asked PG&E for specific revenue information before considering its emergency request to pass its debt burden on to customers.
Consumer group has doubts
The Utility Reform Network, a ratepayer advocacy group, is also preparing a study on how the utilities have benefited. That organization and others say the utilities are trying to have it both ways - profiting from the high rates while trying to get the public to bear the burden of the liabilities.
"We can't allow the PG&E corporation to play hide and seek with their profits," said Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights in Santa Monica.
"They're proudly telling their shareholders how well they're doing by selling energy, and whimpering or complaining to the PUC and the public that they're losing billions of dollars because of high energy rates. It shows their contempt for the ratepayers," Heller said.
PG&E's utility reported second-quarter earnings of $216 million on $2.3 billion in revenue, a 26 percent increase over the same quarter last year. The parent company's stock closed at $24.75 a share last Friday on the New York Stock Exchange.
To be sure, utilities are far from the chief beneficiaries of the steep run-up in wholesale prices: energy traders and power producers have that distinction. And the revenues PG&E is seeing as a result of those high prices don't come close to covering the amount of debt it amassed to keep its customers' lights on.
PG&E spokesman Greg Pruett said the company's profits for the most part have not come at the expense of California ratepayers. He said the company's profitability is also due to other factors, such as reducing losses.
"Absolutely, positively, there is no doubt that our PG&E National Energy Group is in the market to earn a profit, a fair profit, and it's in those markets across the United States," Pruett said. "But I would quickly add that those markets are not as dysfunctional as the market in California. The situation in California is truly anomalous."
The company's National Energy Group, based in Bethesda, Md., owns generators in Massachusetts, Rhode Island and New Hampshire. It supplies power to residents of those states, but not to California.
The unit posted a 233 percent profit in the second quarter as a New England heat wave in May sent wholesale prices surging to $6,000 a megawatt hour.
And when the agency that controls New England's power grid sought to impose a rate cap of $1,000 per megawatt hour, an industry trade group, the Competitive Power Coalition - of which PG&E is a dominant member - opposed the plan. It was ultimately approved by the Federal Energy Regulatory Commission.
"In New England, we have not felt the situation is broken in the way we determined California to be," said Karen Tomcala, a director of PG&E's relations with federal regulators. "We have not sup
ported price caps in the Northeast."
Strong report expected
Though the heat there has relented, prices remain high, and analysts expect another strong showing when PG&E's third quarter results are released later this month. Though the company cites lower costs as a reason for profitability, the National Energy Group reported revenue of $3.3 billion in the second quarter, up from $2.4 billion in the same period of 1999, earning $37 million in profits.
Even PG&E's debt-laden utility, which serves 4.5 million customers, has shared in the wealth. Under the way energy prices are set, the market price is determined by the highest bidder. So the utility's power-generating facilities have been able to fetch the same high rates that the independents are seeking.
Dan Richard, a senior vice president of governmental relations for PG&E, said last week that the utility's revenue from the old power facilities it still operates amount to about $150 million a month.
That money is going toward paying down the balance on what utilities call "stranded costs," or the book value of their investments in nuclear power plants and alternative energy contracts that became a liability when deregulation was set in motion.
When the balance in that column hits zero - and PG&E executives say it may already have - the utility may seek permission to pass on high wholesale costs to customers sooner and make them liable for the $2.2 billion-and-counting in debt the company has assumed under the rate cap.
PG&E last week filed a request with the PUC asking for permission to transfer debt obligations to ratepayers... |
