Summary: This year industrial customers of SCE and PG&E received rate increases of 80 to 100%, devastating many businesses. On September 20, the CPUC suspended the right of California businesses to purchase electricity from non-utility suppliers. CMTA recommends that rates be lowered and customers maintain the right to contract for energy supplies and/or self-generate to manage high prices, increase reliability and improve the quality of service.

Problem: Before recent increases, rates reflected cost-differentials between customer classes, related to differences for capacity, time of use and line losses. These cost differentials could have been preserved by increasing rates for all classes by an equal percentage. Instead, the CPUC shifted costs from small customers onto large industrial customers. (This cost-shift was unnecessary to protect 130% of residential usage as required by state law.) The combination of this cost-shift and new on-peak pricing caused some industrial customers costs to more than double. As a result, businesses are laying off employees and shifting production out of state. (See the Energy Casualty Report).

When direct access was suspended on September 20, the CPUC warned customers with earlier signed contracts that retroactive suspension, or excessive fees based on future (not past) DWR costs could be imposed, threatening the economic viability of the direct access contracts. Also, customers who are incurring multi-million dollar obligations to install self-generation and improve reliability are being threatened with potential fees for future DWR costs.

High utility rates, the potential for excessive exit fees, and no ability to contract for electricity at competitive prices threaten California industry in both the short and long term.

Proposals: The CPUC should reopen the most recent rate case and impose equal percentage increases from rates in effect prior to January 1, 2001, or roll-back rates for industrial customers so that no class incurs an average increase more than 50% from last year. The revenue shortfall from that reduction should be spread equally among all other customer classes.

CMTA recommends that CPUC not impose fees on direct access or self-generation customers related to future DWR purchases. All customers with existing direct access agreements should be permitted to continue with these arrangements, including renewals of such agreements. CPUC may impose fees on direct access and self-generation customers only to recover actual costs of electricity already consumed by such customers. This protects all customers from cost-shifting and preserves the right to competitive choice of energy supplies.

Benefits: More businesses will fail or leave California unless electricity prices are rapidly reduced to more competitive levels. Especially during periods of shortage and high prices, the economy will benefit if businesses are able to forecast and achieve price stability.