Pacific Gas & Electric expects its electric rates for next year to increase an average of 3.1 percent?with residential and agricultural customers expected to bear more of the brunt than business customers. ?This is not, in itself, a request for a rate increase but more in the nature of a prediction of what will happen in January given changes in various balancing accounts and the assumed results in certain pending rate cases, including cost of capital, which is hotly contested,? said Mike Florio, The Utility Reform Network senior attorney. In an advice letter filed with the California Public Utilities Commission October 15, PG&E proposes that residential rates rise 4.1 percent and agricultural rates 4.3 percent. Business rates would increase by 2 to 2.7 percent. PG&E predicts a $315 million increase in rates. That number does not reflect savings from refinancing bonds through the ?dedicated rate component? authorized by the Legislature this year. A $315 million increase would wipe out 40 percent of the $799 million decrease that occurred earlier this year as a result of the bankruptcy settlement, noted Florio. Because much of the utility?s estimated increases would apply to its distribution and transmission accounts, residential ratepayers are allocated more of the cost. Residential customers could face a higher allocation in phase 2 of the utility?s general rate case?a decision on which isn?t expected until late next year. Since the energy crisis, when commercial rate hikes surpassed those for the more politically sensitive residential class, businesses have been calling for reallocation of responsibility to small consumers. This issue is being tackled at the CPUC in the general rate case, as well as being lobbied in the state Capitol. The California Manufacturers & Technology Association (CMTA) is trying to change underlying law that says utilities may not raise rates on residential customers that use 130 percent or below the baseline rate. ?So utilities have to soak either the top tier of residential ratepayers or businesses,? said Dorothy Rothrock, CMTA policy director. She added that businesses were ?inappropriately hosed? when rates were allocated in June 2001. The Silicon Valley Manufacturing Group has the same beef with current rate allocations. It lists one of its three priorities as ?reestablishing fair rates based on actual cost to serve? and ?rectifying hundreds of billions [of dollars] in cost-shifting.? Because rates are going up in general, that allocation is getting more difficult to address because of the protection of lower-end residential ratepayers, Rothrock said. While PG&E?s new rates would allocate more of the increase to residential ratepayers, it would raise rates even more for agricultural users?from 11.47 cents\/kWh to 11.97 cents\/kWh. ?I expected around a 2 percent increase? due to inflation only, ?close to zero for cost of capital, and a small reduction for the regulatory asset,? said James Weil, Aglet Consumer Alliance representative.