Southern California Edison ratepayers will likely see an 18 percent increase in their utility bills in the first part of 2006. That hike will erase a 13.5 percent rate reduction granted in 2003. The increases are driven primarily by the higher cost of natural gas. "Overall this is going to be painful for a lot of small and medium-sized businesses in the state," said Jack Kyser, Los Angeles County Economic Development Corporation chief economist. However, he said, the increases come as no surprise. Southern California businesses understand that Edison's costs have gone up but are better prepared to cope with higher rates than during the state's energy crisis of 2000-01 because they are becoming more energy efficient, said Brendan Huffman, Los Angeles Area Chamber of Commerce public policy director. Edison's first rate increase, of 9 percent, approved by the California Public Utilities Commission, took effect January 1. It accounts for the higher cost of power supplied under long-term California Department of Water Resources power-purchase agreements. Edison's second increase, of 5.5 percent, which the CPUC is expected to consider as early as January 12, reflects rising fuel and non-DWR power-purchase costs. For instance, the cost of gas to power the utility's new Mountainview plant in Redlands will be higher than anticipated. If the commission approves that increase, it will show up in customer bills as early as February 1. "The first two steps are virtually all natural gas-driven," said Gil Alexander, Edison spokesperson. Related to the higher costs of power is the closure December 31, 2005, of the coal-fired Mohave power plant outside Laughlin, Nevada, under a settlement that requires installation of air pollution controls. Edison has lined up more expensive replacement supplies for its 885 MW share of output from the 1,580 MW plant, said spokesperson Gloria Quinn. Under the third hike, outlined in Edison's general rate case for 2006, the utility is seeking an added 3.8 percent to raise $380 million annually over the next three years to upgrade its aging transmission and distribution network. Edison does not expect the commission to consider that request until February, so customers are unlikely to see that increase until sometime in March, said Alexander. That increase could be lower because the company expects some disallowances in the general rate case proceeding. Together, the increases will raise Edison's total rate revenue by between 15 and 18 percent, although they will not be borne evenly by customers. Baseline and tier-two residential customers who do not exceed 130 percent of baseline usage will be exempt from the increases. These two rates cover 55 percent of residential customer usage and account for about 1.5 million of 4.4 million residential and business customers in Edison's service territory. Only larger tier-three and -four customers, who respectively use between 130 and 200 percent and more than 200 percent of baseline electricity usage, will pay the 15 to 18 percent increase. The rate hike will be spread evenly among business customers, according to Alexander. Edison hopes it will be able to soften the impact of the rate increases on customers by using the record amount of money allocated by the CPUC for energy-efficiency rebates in 2006.