California Battle over Electricity Rate-Setting Shows No Signs of Letting Up

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Contra Costa Times

Gov. Gray Davis wants control of your electricity bills, a power that has been held for nearly a century by an independent state commission that is extremely reluctant to give it away.

But the right of utility customers to have their rates considered in open forums could end up another casualty of the state’s immersion into the electricity market, a program that has spent $ 11.3 billion this year and leaves the budget exposed to potentially significant shortfalls next year.

Even members of the Public Utilities Commission, which earlier this month rejected Davis’ demand that it give up its authority over rates, acknowledge the possibility that the best they could end up with is nothing more than the ability to hold hearings, review documentation and, in the end, do what the administration tells it to do with rates.

The dispute over rate-setting authority is at the center of a high-stakes test of wills that shows no signs of letting up.

In fact, the impasse between Davis and Treasurer Phil Angelides on one side, and the Democratic-controlled PUC and Senate leader John Burton on the other, broke into a more strident fight this week.

A bipartisan majority of PUC commissioners argue that a bill passed by Burton spells out a cheaper and more efficient method for the state to borrow money on the bond market and preserve at least some oversight of electricity rates.

But the Davis team says that it needs sole authority over rates to assure investors that they will be repaid. The administration’s team says that the PUC, by failing to sign off on an agreement to give up its ratemaking authority, is acting irresponsibly.

“Every day that (the PUC) doesn’t act on it, they are sending the state toward fiscal chaos,” Angelides told local government leaders at a luncheon in Oakland this week.

The treasurer warned that local government budgets could be trimmed if the conflict is not resolved so that he can sell bonds.

“If the energy bond does not happen by next June, and that’s a real risk, the state budget deficit goes to $ 10 billion,” Angelides said. “It’s disaster.”

Still, even if the PUC were to give in, it is widely assumed that lawsuits would be filed by Pacific Gas & Electric and others, protesting the PUC‘s abdication of its ratemaking authority.

“It would be a massive attack, which would have an unsettling impact in the investment community,” said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights. “That (the Davis plan) was falling apart anyway.”

When wholesale electricity prices shot through the roof last winter and broke the finances of PG&E and Southern California Edison, the state was forced to step in and begin buying electricity for utility customers.

Since that time, more than $ 6 billion of taxpayer money has been spent, the state has taken out a $ 4.6 billion loan and imposed the largest electricity rate increase in California history.

Davis’ plan is to use a record-setting, $ 12.5 billion bond issue to repay the bridge loan, replenish the general fund and allow for the electricity costs to be spread out over time.

On Friday, administration officials released new figures showing that the amount of money they will need to support the electricity program this year and next year has dropped by several billion dollars over their latest estimate, made two months ago.

But the new figures will not necessarily translate into savings for ratepayers because of hangups at the PUC, administration officials said.

For one thing, Davis advisors said delays at the PUC over a new rule that prevents utility customers — especially large businesses — from exiting the utility system and cutting their own deals with energy companies will cost the rest of the state about $ 850 million through next year.

The PUC disputed the administration’s figures and said part of its delay in barring direct access was done at the behest of administration officials.

In any case, critics of direct access say that everyone else will have to pay for the subsidized electricity that businesses used during the first part of the year.

And because of the failure to reach a rate agreement with the PUC in time to issue bonds by the end of this month, the state will see payments accelerate on the $ 4.3 billion bridge loan that closed in June. Instead of paying the loan off with the bond proceeds, the state now must plan for $ 390 million payments four times a year, beginning next spring.

With both sides unwilling to blink, relatively little middle ground has emerged. Here are some of the options:

— The PUC could capitulate, sign off on a rate agreement that gives the state unfettered access to electricity rates and allow the bond issue to go ahead. In a 4-1 vote, the PUC killed the rate agreement and is unlikely to take the issue up again unless the administration proposes a new agreement.

— Davis could reverse himself and sign Burton’s bill, which he has promised to veto and which his administration says will not work because it short-circuits payment guarantees contained in electricity contracts the state has purchased. This option would get a boost if federal regulators deemed those contracts unfair and forced changes.

— The two sides could come to a compromise. The administration’s new willingness to try to renegotiate some electricity contracts is directed at appeasing the PUC and is part of a larger effort to settle differences with the commission.

— The administration could try to steamroll the PUC by selling bonds and incorporating the repayments into revenue demands that the state already sends to the commission. This option is problematic because it might not provide enough assurance for investors. In an August letter, JP Morgan said an explicit agreement with the PUC “is the only way to provide those contractual assurances.”

— The budget could suck it up. Deficits would balloon, taxes would rise, or both. This option is getting increasing, if muted, attention.

“That (a tax increase) is the simple way out,” said PUC Commissioner Richard Bilas, a Republican economist who views that option with distaste, particularly now in an economic downturn.

“Let’s see who wins the game of chicken — and that’s what it is,” he said.

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