David Kravets, Associated Press Writer

Associated Press State & Local Wire

SAN FRANCISCO: The California Supreme Court has agreed to decide whether power regulators unlawfully authorized a utility to use money generated by record-high electric rate hikes to pay its debts.

The case was brought by consumer advocates challenging a 2001 closed-door settlement between the Public Utilities Commission and Southern California Edison, one of two California utilities thrust into debt by soaring energy costs during the state’s recent power crisis.

The settlement between Edison and the PUC enabled the utility to pay its debts – and avoid joining fellow utility Pacific Gas and Electric Co. in bankruptcy court – by keeping temporary rate hikes in place for two additional years.

But the Utility Reform Network, a San Francisco-based consumer advocacy group, sued, saying the settlement has forced millions of customers to continue paying among the highest rates in the country for expenses the rate hikes weren’t intended to cover.

The court’s eventual decision could also affect PG&E‘s future, as the PUC has proposed a similar plan to help the state’s largest utility settle debts and emerge from Chapter 11 protection.

The Supreme Court chose to take the case at the request of the 9th U.S. Circuit Court of Appeals, which found the state had violated open-meeting laws and breached California energy deregulation laws when it approved the Edison plan. The federal appeals court sent the case to the high court because it wanted to leave state issues up to state courts.

Six of the seven Supreme Court justices agreed Wednesday to decide the issue during the court’s weekly private conference. Justice Ming Chin abstained from the vote.

The settlement allows Edison, an investor-owned utility, to recover about $3 billion in debts. The appeals court said that violated deregulation rules, which promised utilities profits during good times but financial risk during the bad.

“We are confident the California Supreme Court will read California law as the Ninth Circuit has, and come to the same conclusion,” said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, a Santa Monica-based consumer advocacy group. “The utilities, their parent companies, their stockholders and their vendors reaped the rewards of deregulation, and they must bear the losses.”

Edison officials said Wednesday it was glad the case was progressing and looked forward to a full resolution.

“We are pleased the Supreme Court has agreed to hear the issues sent to it by the court of appeals and we look forward to briefing the court on the merits of the judgment confirming the settlement agreement,” Edison president Robert Foster said in a statement.

Edison and PG&E amassed billions in debts when wholesale electricity rates soared beyond the frozen retail rates that utilities could recover from customers in 2000 and 2001 under deregulation rules. State lawmakers and Gov. Gray Davis debated for months what role the state should play in the utilities’ future, but legislation to bail out the utilities failed and the PUC intervened.

Consumer groups said Wednesday that Edison customers could receive at least a $3 billion refund in rates should the Supreme Court agrees with the appeals court. The pending decision, which won’t come for months, also could undermine the PG&E bankruptcy proceedings, which are ongoing.

PG&E has 4.6 million residential and commercial customers in Northern and Central California. Edison serves 4.3 million Southern California customers.

The Supreme Court did not say when it would rule, but set a five-month briefing schedule.