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Energy Pay now, pay later: Get ready to pay more for electricity for a long time to come

State Bill Spreads Energy Payments Over Five Years

Customers of San Diego Gas & Electric Co. may see their electricity bills swell for five years starting in 2002 or 2003, as San Diegans come to grips with an energy “balancing account” that now stands at $750 million.

Assembly Bill 578, proposed by Jay LaSuer, R-La Mesa, would direct the California Public Utilities Commission to allow that $750 million payment to be spread out over five years, rather than being settled in a “balloon payment,” or one lump sum.

AB-578, scheduled to be heard in the Legislature this week, is designed to correct a problem created by AB-265, approved last September. The earlier law created a retail rate cap of 6.5 cents per kilowatt hour on SDG & E; customers’ bills, said Laurie Paredes, a spokesman for LaSuer.

The AB-265-imposed rate cap would last until the end of 2002, with a possible extension to 2003, he said. At the end of the freeze, SDG & E; would then be owed a “balancing account” also created by AB-265, Paredes said.

The balancing account tracks the difference between the 6.5 cents per kilowatt hour the consumers pay for electricity from SDG & E; and the higher cost the utility had to pay for it. Currently, the balancing account stands at about $750 million, she said.

Repayment Up In Air

How that balancing account would be paid, and whether the ratepayers are on the hook for that $750 million, was not established in AB-265, Paredes said.

“AB-578 closes the loophole where the ratepayers would be responsible for the entire account to be paid all at once,” she said. “(AB) 578 simply directs the PUC to establish a payment mechanism where the customers would be able to spread the payment out over a five-year period,” she said.

The proposed law does not eliminate the possibility that the balancing account could be reduced, or even paid off in full, if the state purchases the utility’s transmission lines, Paredes said.

Nor does AB-578 eliminate the possibility the balancing account could be eliminated as a result of action by the Federal Energy Regulatory Commission. If FERC orders the generators to reimburse SDG & E; for overcharging, that could also reduce the balancing account, or pay it off in full, she said.

Conflicting Views

Art Larson, spokesman for SDG & E;, said the utility has no position on the bill. Under AB-265, SDG & E; is already entitled to collect all its costs for prudently purchased energy under the balancing account, he said.

Michael Shames, executive director of the Utility Consumers’ Action Network, opposes AB-578. The new law seeks to change last year’s AB-265, a pro-consumer law that Shames helped write.

Under both AB-265 and AB-578, SDG & E; is entitled to recoup those costs. The main difference is that the earlier law was deliberately vague about the collection of the balancing account, while AB-578 puts the onus entirely on the ratepayers, he said.

“It commits San Diegans to having to pay off that stupid balancing account over five years. And one, I question the assumption whether we’re obligated to pay that off; two, I question whether five years is appropriate,” Shames said.

Under AB-265, SDG & E; is entitled only to recoup a “just and reasonable” amount for its electricity. Since FERC has already found that wholesale rates in California are unjust and unreasonable, that limits the amount the utility can collect from ratepayers, he said.

That could substantially reduce the amount in the balancing account from its current $750 million. Shames said for this and other reasons, it’s impossible to predict how much money will actually be in the balancing account once price caps are lifted.

Problems For Consumers

That means committing to a five-year time-span is also a bad idea, Shames said. If the balancing account turns out to be substantially lower than $750 million, then ratepayers are on the hook for five years of extra payments and interest, for no good reason, he said.

However, if the balancing account turns out to be substantially higher than $750 million, then consumers would face backbreaking payments that might better be stretched over a 10-year period, Shames said.

AB-265 was left deliberately vague to allow ratepayer advocates room for debate. If AB-578 passes, that room will disappear, he said.

“It narrows the scope of that dispute in a fashion that doesn’t help San Diegans,” Shames said. “LaSuer’s bill effectively creates certainty in an area where certainty doesn’t help consumers. It helps San Diego Gas & Electric.”

‘A Little Absurd’

Paredes disagreed, saying that AB-578 is designed to protect the consumer. She called Shames’ assertion that consumers are helped by the vague wording in AB-265 “a little absurd.”

“That leaves everything in the hands of the PUC and San Diego Gas & Electric. And Assemblyman LaSuer basically says that nowhere else in the state have electric customers been forced to step up to the financial plate,” Paredes said. “To further expect them to come up with more money in the form of a balloon payment is outrageous.”

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