Current Shock

A California Rate Revolt

To the company's shareholders, the initials PG&E stand for Pacific Gas & Electric, the largest U.S. commercial supplier of electricity. But more and more of the California utility's customers prefer "Piggish, Greedy and Egotistic" instead. In recent months residents from Oregon to the Mexican border have been hit with unimaginably steep jumps in their electric bills.

In the Northern California town of Orland, Donna Marley, 40, a widow, saw her December electric bill of $87 leap to $210 in a month. Neighbors Barney and Verna Cushman were shocked when their December bill of $360 surged to $624 in January. Nor have PG&E customers been the only ones hit. In San Diego, Verna Murray, a customer of San Diego Gas & Electric, thought that her $250 per month electricity payments were already excessive; her December bill exploded to $1,854.26.

The main cause of the run-up has been a series of rate adjustments by the California Public Utilities Commission, and the result has been to enrage consumers. Residents in 21 counties have staged electrical blackouts in protest, and at least 1 million people have signed petitions calling for a statewide rollback in rates. Last week more than 1,000 demonstrators converged in Sacramento for a "California tea party" and demanded that Governor Edmund G. Brown Jr. declare a state of emergency. In Loomis, a crowd gathered in a school auditorium and chanted, 'We're mad as hell and we're not going to take it any more."

Rates exploded after the PUC granted PG&E and San Diego Gas & Electric increases of $909 million and $166 million, respectively. In January, PG&E was also allowed to adjust its "tier system," by which the electrical charges go up as usage increases. As a result, at least 50% of the state's residents saw their bills double and in some cases triple.

The utilities contend that the hikes are necessary to cover the rising costs of fuel, labor and materials. Critics retort that gross mismanagement is the real problem. Both utilities committed themselves in the late 1970s to buy oil under long-term contracts at prices far higher than those now prevailing. Conservation has cut electrical consumption, but the companies must still incur tens of millions of dollars in expenses to dispose of oil that they are obligated to buy but do not now need.

Responding to public pressure, PUC has ordered PG&E to roll back $100 million of its January rate increase immediately. Last week Governor Brown asked the commission for a further reduction and ordered an investigation into PG&E's construction-cost overruns, including its ill-fated Diablo Canyon nuclear facility, whose completion has been delayed by a Nuclear Regulatory Commission probe into its design and safety.

California's lawmakers have also begun to feel the heat. Four major bills have been introduced into the state legislature, including one that would require utilities to pass cost overruns on to stockholders instead of consumers. That may not solve the current squeeze on electricity users, but it should make shareholders more attentive to how well the utilities are run.

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