SDG&E; Seeking 10% Rate Cut Thanks to Deregulation Payoff

San Diego Gas & Electric announced Thursday that it will ask regulators for permission to lower electricity rates by 10% because the investor-owned utility is managing a surprising 2 1/2-year jump on paying off most of the charges tied to the restructuring of the state’s electricity market.

The rate reduction, if approved, would reduce the average electricity bill for a typical residential customer in San Diego and south Orange County by about $70 a year over pre-deregulation levels, SDG&E; said.

The utility serves 100,000 households and businesses in South Orange County.

The rate reduction would deliver $400 million in benefits to the San Diego area economy by 2002, the deadline for eliminating most of the “competition transition charge” from customers’ bills, the utility contends.

“This shows that the restructuring is working and it’s going to provide economic benefits to California,” said Edwin Guiles, president of SDG&E;, one of three large investor-owned utilities that opened their territories to retail competitors last March 31 as part of a landmark restructuring of the electricity industry mandated by the state Legislature in 1996.

“For SDG&E; customers, it means lower rates and a quicker transition to a competitive electric market,” Guiles said.

Southern California Edison and Pacific Gas & Electric both said Thursday that they could not predict when they would pay off their transition charges.

SDG&E;, in a filing with the California Public Utilities Commission expected today, will ask for elimination of the current cap on electric rates and a reduction in its base electric rates effective July 1 for the transmission and distribution of power, the only part of the bill that the utility currently controls. (The actual cost of the electricity is determined by hourly prices set at the Power Exchange, the electricity-trading operation created by the deregulation legislation.)

But critics of deregulation worried that the quick elimination of the rate freeze for San Diego customers could expose them to price spikes. Also, the PUC has yet to establish clear rules of operation for utilities in a completely open market.

“This news about the CTC [competition transition charge] being over is akin to the teenager being sent off to college--we get to party over the freedom from the CTC, but the reality of an unpredictable electricity market is sort of sobering,” said Michael Shames, executive director of the Utility Consumers’ Action Network, a San Diego-based consumer advocacy group.

As part of the 1996 electricity restructuring legislation, SDG&E;, Edison and PG&E; were allowed to pass along to ratepayers all of the unprofitable investments that were deemed a hindrance to the utilities’ ability to compete in a deregulated market--the so-called competition transition charge. Electricity rates were frozen as of Jan. 1, 1998, for residential and small-business users and those customers were granted a 10% discount on their bills.

Utilities also were required to sell their gas-fired electricity generation plants.

Like the other utilities, SDG&E; has been able to sell its power plants at well above book value. That allowed the early payoff of the generation portion of the transition charge, Guiles said. A smaller portion devoted to paying off old power contracts, among other things, continues.

SDG&E; will ask the PUC to shield customers by allowing a rate cap to continue during the high-cost energy months of July through September, while allowing the utility to recoup any costs above the cap for the next nine months. As a result, the full force of the rate reduction might not be felt for a year.