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San Jose, Calif.-Area Residents May Face Electric Rate Hike

Posted on: Saturday, 15 October 2005, 00:00 CDT

By Matthai Chakko Kuruvila, San Jose Mercury News, Calif.

Oct. 15--Already staggered by surging gasoline prices and braced for spiking natural gas costs, Bay Area residents will soon be hit by a sharp rise in electricity rates.

PG&E on Friday filed an additional request with state regulators to raise electricity rates by 13.3 percent, and they could jump by as much as 20 percent by January 1 because of rising natural gas costs.

The pain will not be evenly distributed among consumers, however. The rates paid by roughly half of PG&E's customers will be barely affected, if at all, because of a state law that rewards them for moderate usage.

But energy hogs will pay through the nose, bearing the brunt of residential rate increases. And the more they use, the steeper the increase in price.

"Customers' conservation is their best tool against increasing energy costs," said PG&E spokesman Jon Tremayne.

The electricity rate hikes will add to hurt from soaring natural gas and gasoline prices. PG&E customers will see natural gas bills rise by an average of 49 percent this winter and gasoline costs have increased by 60 percent over the last nine months.

The Christmas hangover will be costly. For all fuels combined, the average household will be spending at least $170 more this January than they did last January, assuming gasoline prices stay constant.

"For consumers, the cumulative effect of all this is what's painful, rather than one alone taken in isolation from the rest," said James Sweeney, a professor of management science and engineering at Stanford University. "It's what I call the triple whammy -- gasoline, natural gas and electricity, in the order that people are going to see it."

The natural gas effect on electricity is particularly hard felt in California. The state has tilted toward natural gas-fired power plants because they have far fewer emissions than coal-fired plants, and are far less controversial than nuclear.

So roughly 43 percent of the electricity supplied to PG&E customers was created at a natural gas-fired plant. Nationally, only 17 percent of all power plants are fueled by natural gas.

Because of an extensive pipeline network connecting the country and Canada, the price for natural gas is largely set on a national market. And as demand has increased, supply has stayed relatively flat. There's little infrastructure to import more natural gas.

The tight supply was exacerbated by the hurricanes Katrina and Rita, which shut down roughly 20 percent of the country's natural gas production.

PG&E's request Friday was for a 2.5 percent rate hike. That comes on top of a September request for a 10.8 percent hike. Beyond those, an additional hike is expected to be requested because of electricity contracts signed by the state Department of Water Resources during the energy crisis five years ago. Most of those contracts pass on natural gas costs in electricity generation. The combined requests could result in an increase of as much as 20 percent.

The California Public Utilities Commission is expected to rule on the requested rate hikes in December.

Oscar Hidalgo, spokesman for the water resources department, declined to state how much those costs will increase before January 1. But his department is expected to file a request for an increase in coming weeks.

Electric rates may be going up, but they are not volatile -- a critical distinction for a state that is still paying for the fallout of the 2000-2001 energy crisis, which was triggered by a natural gas price spike.

Natural gas price hikes are not expected to have a similar effect this time, showing just how far the state has come, several observers and regulators say. That is largely due to how the state electricity market is now set up.

During the energy crisis, the extreme dependence on the short-term market made electricity prices fluctuate with natural gas prices. Now, PG&E has over 95 percent of its electricity under long-term contracts, said spokesman Tremayne.

Said Sweeney, the Stanford professor: "we've gone way beyond those errors of the past."

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Copyright (c) 2005, San Jose Mercury News, Calif.

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PCG,

Source: San Jose Mercury News

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