Consumer groups cry foul at utility’s restructuring bid

Published on

The Associated Press

Consumer groups said Monday that Pacific Gas & Electric Corp.’s restructuring should make lawmakers and Gov. Gray Davis think twice before considering a bailout for troubled utilities.

The Federal Energy Regulatory Commission gave permission Friday for PG&E Corp. to change its corporate structure, effectively insulating the bulk of its assets from the credit problems of its utility.

In response, PG&E created the National Energy Group, the business arm of PG&E Corp. that will own power generating facilities and natural gas projects.

“It enables the National Energy Group to finance its own projects, not dependent on the rating of the PG&E Corp. or any other companies,” said Greg Pruett, spokesman for PG&E Corp., the parent company.

Creating the new company also lessens the financial risk for the PG&E Corp., Pruett said. He said the corporation won’t have to act as a backer for new NGE projects such as the construction of power plants in California and Arizona.

But critics say the reorganization puts the parent company’s assets further out of reach of the utility’s creditors.

“The PG&E corporation put a big barbed-wire fence around the generating assets,” said Nettie Hoge, executive director of The Utility Reform Network.

She said that the restructuring makes the utility seem financially worse off than it is and thus gives what she said is a false impression that it needs the state’s financial help.

Pruett said that even without the restructuring, PG&E Corp.’s unregulated assets couldn’t be tapped to cover the utility’s debts.

“Under the Public Utility Commission’s regulation, it’s very specific in stating that PG&E and any sister companies had to have a brick wall between them to protect consumers,” Pruett said. “You couldn’t have the utility coming in and bailing out another company. And it couldn’t work the other way.”

The PUC has asked for an audit of the entire corporation’s holdings.

The reorganization should “raise the ire of anybody who has ever paid a bill to PG&E,” said Doug Heller, of the Foundation for Taxpayers and Consumers Rights. “The people of Northern California have funded the prosperity of PG&E and now the corporation is stuffing all the money into a suitcase and leaving the country.”

State and federal officials met with electricity wholesalers this weekend to negotiate a plan for the state to buy electricity and sell it to utilities. That plan is expected to be introduced in the Legislature on Tuesday.

Davis said Sunday the state will try to sign long-term contracts with the electricity wholesalers to buy power and sell it to utilities.

The state believes it can negotiate better prices than the utilities, which have seen their credit ratings plummet in recent months.

PG&E and Southern California Edison, Co. officials say they have amassed billions of dollars in debt as they buy energy at record-high wholesale prices and sell it at rates capped by deregulation rules.

The Legislature and Gov. Gray Davis should “think twice before handing down a bailout,” Heller said. “What this exposes is that PG&E can bail itself out. That’s why they’re doing this.”

In 1996, California Legislature approved and then-Gov. Pete Wilson signed a bill deregulating the state’s electricity market.

The law, and PUC regulations, required utilities to gradually sell off their generating assets. Once the sell-off was done, the rate freeze would be removed and the utility could buy power on the open market.

The goal was to lower prices through open-market competition. The first utility to complete the deregulation process was San Diego Gas and Electric. Utility bills doubled and in some cases tripled in San Diego last summer when the rate freeze was lifted.

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases