Dow Jones ,
 Calif DWR Seen Asking PUC To Order 25% Rate Increase Fri
By Jason Leopold

07/13/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Of DOW JONES NEWSWIRES
(This article was originally published earlier Friday.)

LOS ANGELES -(Dow Jones)- The California Department of Water Resources, the
agency purchasing a bulk of the state's power needs in lieu of the three
investor-owned utilities, is expected to tell state regulators Friday that
they need to increase electricity rates by as much as 25%.

This is because there are insufficient funds in the current revenue stream
to cover a $13.4 billion bond sale, three commissioners with the Public
Utilities Commission told Dow Jones Newswires late Thursday.

PUC President Loretta Lynch is expected to issue a draft decision Friday
either endorsing the rate hike request or calling for an audit of the DWR's
current revenue stream before she makes a decision, aides in her office
said.

If the PUC determines that there are not enough funds in the current rate
structure to cover the bond sale, it will have no choice but to order the
rate increase, according to the legislation that put the state in the power
buying business.

Businesses are expected to bear most of the burden of the rate increase,
the second in just two months, if approved by the PUC, the commissioners
said.
"Back in May when we ordered the first rate increase, we said we may be
forced to do it again by the summer," one commissioner said.

"It's unfortunate, but it shouldn't be a shock to anyone. The state has
made an enormous commitment to Wall Street that rates would go up whenever
it's needed to ensure there is enough money to pay off those bonds."

Lynch and a spokesman for the DWR were unavailable for comment late
Thursday.

Separately, Assembly Speaker Pro Tem Fred Keeley, D-Boulder Creek, has
drafted a proposal expected to be introduced into the Assembly Friday or
Saturday that would have large businesses using the most electricity to
finance the bulk of the $43 billion in long-term power supply contracts,
aides in his office said.
Moreover, Keeley's plan is aimed at reducing rates for consumers who use
the least amount of power. Details of the plan are still sketchy, aides
said.

Possible Rate Hike To Generate $2.5B Yearly For State

The 50% rate increase ordered in May is expected to generate $5 billion
annually, and if the PUC orders a 25% increase, that is expected to
generate $2.5 billion. However, it is still unclear if that is enough, the
commissioners said.

Businesses are expected to bear most of the burden of the rate increase,
the second in four months, if approved by the PUC, the three commissioners
said.
Since January, the state has spent nearly $8.5 billion buying electricity
on behalf of customers of Edison International (EIX) unit Southern
California Edison, Sempra Energy (SRE) unit San Diego Gas & Electric and
PG&E Corp. (PCG) unit Pacific Gas & Electric.

The state has borrowed more than $7 billion from its general fund, which
must be repaid by ratepayers at 6% interest, to purchase power.

In addition, the state has locked itself into $43 billion in long-term
power supply contracts at high prices for as much as 20 years to ensure
there is enough power to meet demand. Future rate increases to finance the
contracts are likely, state officials have said.

But if the PUC orders another rate increase, the money won't benefit the
utilities, which have billions of dollars in power costs to recover.
Instead, it will be used to guarantee Wall Street financial institutions
that there is sufficient funds in the rate structure to allow $13.4 billion
in revenue bonds to be sold.

The bonds are expected to be sold in August or September, said state
Treasurer Phil Angelides.

The commissioners said the PUC and the DWR waited to address another rate
hike to see if state officials and generators were successful in coming to
terms on $8.9 billion the state says it was overcharged for power since
last year.

After two weeks of hearings between generators and a delegation of
California utility executives and energy officials, talks broke down
Monday. Generators offered the state $716 million in refunds, but Gov. Gray
Davis balked, threatening to sue to recover the full $8.9 billion.

Any refunds would have been disbursed to the utilities and the DWR, which
could have deferred the need for any rate increase, according to Steve
Maviglio, press secretary to Davis.

An administrative law judge with the Federal Energy Regulatory Commission
said Thursday he will recommend that the commission not order cash refunds
to California because the state's utilities owe far more money to the
generators than what he thinks the state is owed.

-By Jason Leopold; Dow Jones Newswires; 323-658-3874;
jason.leopold@dowjones.com
susan.mara@enron.com, jeff.dasovich@enron.com