Wednesday, October 12, 2005

PG&E Gets OK to Discount Rates to Keep Businesses in State

From the September 19, 2005 print edition

PG&E Gets OK to Discount Rates to Keep Businesses in State
By Celia Lamb

Pacific Gas and Electric Co. has won state approval to give electric rate discounts of 25 percent to attract or retain large businesses.

The state Public Utilities Commission approved the economic development rate reductions Sept. 8. Only businesses that use at least 200 kilowatts, such as food processors or light manufacturers, can qualify. Business owners must sign affidavits that they would leave the state, expand out of state, or not move here because they can't afford the electricity.

The discounts decline by 5 points each year, zeroing out in five years. Critics said residential customers will have to bear a greater share of PG&E's costs to make up for lost revenue. But the utility claimed the rate reductions could benefit all ratepayers by keeping business customers that might otherwise close or move out of state.

The utility doesn't expect many applications. "It's a very small amount of customers that will benefit," said PG&E spokeswoman Christy Dennis.

California Manufacturers and Technology Association spokesman Gino DiCaro said the affidavit requirement could scare away some firms who don't want to open their books and expose their financial straits.

"It's not a large discount," DiCaro said, "and it's a lot of problem to get the discount."

Companies that misrepresent themselves on the affidavit would have to pay penalties of twice the difference between the regular and the reduced rate.

California's electric costs exceed those of other western states by 127 percent, according to a February 2004 study commissioned by the California Business Roundtable. The overall cost of business is 30 percent higher, and electric rates make up one-sixth of that difference.

Since 1990, PG&E has offered a smaller economic development rate reduction. That offer capped discounts at 15 percent and declined to zero in three years. Only businesses in state-designated "enterprise zones" could apply, a geographic limit dropped in the new program.

PG&E's economic development proposal gained traction last year after natural-foods maker Amy's Kitchen Inc. of Santa Rosa decided to expand with a second site in Oregon instead of growing within California. PG&E asked the Public Utilities Commission for permission to lower the food company's $1.2 million annual power bill, but Amy's Kitchen had already decided on Oregon.

By that time, Gov. Arnold Schwarzenegger had taken up the cause, although not at the request of Amy's Kitchen.

"The media played this up to a showdown between the two governors over our electric rates," said Amy's Kitchen Chief Operating Officer Scott Reed. "We winced at the articles."

Reed said his company's rates in Oregon will be one-third of what they would have been with PG&E, but his company put its second plant in Oregon for strategic reasons, including the potential of an earthquake in California.

"We didn't make the decision because we're going to save money in Oregon," he said. "That's just a consequence of the decision. It's a business risk decision. We just didn't want to have all our eggs in one basket."

Details of PG&E's new economic development rate program are still shaky, including who will sift the applications and decide whether businesses truly need rate discounts.

"We certainly don't want to be the ones that have to make that decision," said PG&E spokeswoman Dennis, adding that the responsibility would fall to a state Labor and Workforce Development Agency division.

"That's news to me," said labor agency spokeswoman Jehan Flagg. The agency has no information about the program beyond what the Public Utilities Commission announced in a press release, she added.

Lamb is a reporter for the Sacramento Business Journal.

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