PUC can charge customers for utilities’ energy-related losses

The San Francisco Chronicle

The state Supreme Court upheld a $3.3 billion ratepayer bailout of Southern California Edison Co. on Thursday and said state regulators can charge customers for the huge power bills utilities incurred during the energy crisis.

The court unanimously affirmed the state Public Utilities Commission‘s authority to require ratepayers to cover utilities’ losses from the 2000-01 spike in power prices. The justices rejected a consumer group’s argument that a 1996 rate-freeze law required utilities, not ratepayers, to bear any losses from energy costs through March 2002.

The justices also ruled 6-1 that the PUC‘s settlement of a lawsuit by Edison, approved in a closed-door session in October 2001 after secret negotiations, did not violate open-meeting laws.

The ruling removes a potential legal obstacle to the PUC‘s pending settlement with Pacific Gas and Electric Co., which would require customers to pay most of PG&E‘s debt to power suppliers to lift the company out of bankruptcy. Consumer advocates said the ruling also highlighted the need for action by Gov. Gray Davis, who appointed the PUC members.

“The governor still has an opportunity to demonstrate his sincerity in protecting ratepayers by not allowing PG&E to recover an even richer deal than this one,” said Nettie Hoge, executive director of The Utility Reform Network, which challenged the Edison settlement.

Otherwise, she said, the ruling would “ensure that customers pay for every penny of deregulation’s failure.”

Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights said Davis should press his PUC appointees to rescind the Edison settlement.

But Davis supported the settlement in court and told reporters Thursday that the agreement had made it possible for the PUC to reduce Edison‘s rates, effective Aug. 1, by $1.25 billion, or 13.8 percent. That reduction came after customers had finished paying their $3.3 billion share of the settlement.

The reduction is “more evidence that we’re on the downside of this energy problem,” said the governor, whose handling of energy issues has become a central issue in his recall election.

“It was no accident that the lights did not go out here, when they went out in New York, because we have more capacity and more conservation and now people are starting to see rebates, so that’s a good sign that the Supreme Court decision validated that process,” Davis said.

PUC President Michael Peevey also stressed that the court-approved settlement, while initially expensive for ratepayers, was “a huge step toward restoring Edison to its financial health and will result in lower rates.”

The ruling stems from the state’s 1996 law that partially deregulated electric utilities but froze their rates through March 2002. Utilities reaped profits from the freeze while power costs remained low, but after prices jumped, both Edison and PG&E sued the PUC in late 2000 for refusing to raise rates.

After approving an emergency rate increase for both utilities in March 2001 — about 40 percent for Edison — the PUC reached a settlement seven months later that continued the Edison rates through 2003, canceling $3.3 billion in potential refunds. It also required shareholders to forgo dividends through the end of this year, a loss of as much as $1.2 billion. The company was to use the cash and arrange additional financing to repay creditors and avoid bankruptcy.

A federal appeals court declared last year that the settlement appeared to violate California laws, including a provision of the 1996 law that required utilities to bear the risk of rising power prices through March 2002. But the federal panel referred the case to the state Supreme Court, the highest authority on state law, which said Thursday that the settlement was legal.

A law passed in 2001, and signed by Davis, undid some of the 1996 law’s deregulation and restored the PUC‘s authority to set rates high enough to keep electric utilities afloat, said the opinion by Justice Kathryn Mickle Werdegar.

She also said the closed-door vote on the settlement did not violate a law requiring public hearings for any PUC rate changes because the settlement merely maintained existing rates. Justice Marvin Baxter, in a lone dissent, said the ruling “opens the door to a widespread danger of secret government by lawsuit.”
————-
E-mail Bob Egelko at [email protected]