SACRAMENTO – Electricity rates for about half of California's residential customers, frozen during a crisis seven years ago, could creep up again under a tentative agreement between utilities and consumer groups.

The state's three major investor-owned utilities, including San Diego Gas & Electric, want to spread the pain among all of their customers as natural gas for power plants and new conservation programs drive up costs.

A working group led by the chairman of the Assembly utilities committee, Assemblyman Lloyd Levine, D-Van Nuys, has a proposal that backers hope to move through the Legislature before the scheduled end of the session Friday.

“We are certainly hopeful,” said Mike Florio of The Utility Reform Network, a consumer group in San Francisco. “This is a historic agreement in many respects.”

The proposal would allow the frozen rates to increase at the annual rate of inflation, as determined by the consumer price index, plus 1 percent – but no more than 5 percent a year.

The gradual rate increases would be allowed for a decade, avoiding a sharp increase that might result if the freeze on the rates were suddenly lifted without controls.

Rates for many residential customers, who use the lowest amounts of power, were frozen in February 2001 by legislation responding to a crisis created by a deeply flawed attempt to deregulate electricity.

But the rates for customers who use more power have been allowed to increase.

“You end up with inequitable cost sharing” and ratepayer complaints, Levine said. He said two utilities, which are unidentified, reportedly “are talking about 30 percent rate increases next year.”

Electricity rates vary among geographical areas, reflecting climate differences, and with the seasons. The rates are usually divided into five tiers based on the amount of power used.

For more than half of SDG&E's residential customers, the bottom two tiers with the lowest amount of power use are frozen, with an average rate of about 14 cents per kilowatt hour.

Christy Heiser, an SDG&E spokeswoman, said the average rate for customers who use power above those tiers and have unfrozen rates is 21.6 cents per kilowatt hour for tier three, and 24 cents for tiers four and five.

The gap between frozen and unfrozen rates is much wider at the state's largest utility, Pacific Gas & Electric.

“We look forward to continuing to meet with (Levine's working group) and continuing to examine this proposal,” said David Eisenhauer, a PG&E spokesman.

The landmark bill that froze the rates authorized the state to begin buying power after the two largest utilities, PG&E and Southern California Edison, ran up a $12 billion debt and were cut off by creditors.

Estimates of the additional cost to ratepayers from the botched deregulation have ranged from $10 billion to $25 billion. The state continues to buy power under some long-term contracts purchased during the crisis.

The bill also prohibited customers, mainly businesses, from bypassing the regulated utilities and making new purchases of power on the open market, a limited form of deregulation called “direct access.”

Two years ago, a coalition of 200 businesses joined by some government agencies asked the state Public Utilities Commission to lift the ban on new direct-access purchases, contending that the electricity crisis was over.

Legislative leaders sent the commission a letter last year saying new direct-access purchases are a legislative issue and should not resume until the state power contracts expire, probably in 2015 or 2017.

The working-group proposal would require legislative approval of new direct-access purchases. But businesses that already have direct access would be able to expand their use of direct access to new facilities.

Various business interests, including a manufacturers group, did not respond to a request for comment.

Another working-group proposal would allow utilities to switch to “time of use” pricing in 2016, charging more for power in periods of peak use and less during other times. Customers could opt out.

Michael Shames of the Utility Consumers' Action Network in San Diego said his group has long opposed “opt-out” burdens on consumers. He said UCAN will probably be neutral but not opposed to the working group plan.

Florio said he sympathizes: “People aren't going to watch prices on their laptop before they run the dishwasher.”

But, he said, the legislation allows time to phase in a switch to time-of-use pricing the PUC wants to make soon.

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Ed Mendel: ed.mendel@uniontrib.com