Court upholds utility bailout;

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San Jose Mercury News (California)

The state Supreme Court has upheld the legality of a deal that bailed out the state’s second-largest utility by keeping its customers’ electric bills artificially high.

In a case that has implications for consumers statewide, the court said the 2001 bailout agreement between the Public Utilities Commission and Southern California Edison did not violate state energy deregulation or open meeting laws, as claimed by a consumer group.

“It’s a very positive development,” said PUC President Michael Peevey. ”It’s a further step out of what has been dubbed the energy crisis. This is a major recognition that is behind us and we are moving forward.”

The case stems from the state’s deregulation of the power market in 1996. At the time, lawmakers froze consumer electricity rates and told utilities they could keep any excess profits while they made the transition into a competitive market.

But when their wholesale power costs started soaring in 2000 — and the rates they collected from customers stayed the same — the state’s utilities plunged into debt. Edison sued the PUC to try to force it to raise rates.

The PUC eventually raised rates on its own by about 40 percent in 2001. Then the PUC and Edison brokered a deal in which the PUC promised to keep rates high while the company got out of debt.

Edison ultimately collected at least $3 billion in extra customer utility fees and paid off its debts. This summer it cut electricity rates for its customers by about 14 percent.

The consumer group The Utility Reform Network challenged the legality of the settlement, which was brokered in secret, saying it violated the 1996 rate freeze and open-meeting laws. It argued that the $3 billion Edison collected should go back to ratepayers.

But six of the seven justices disagreed, saying they could find no violation of state law. Associate Justice Marvin Baxter was the lone dissenter.

”It’s a sad day for consumers and a troubling day for California citizens,” said Bob Finkelstein, an attorney with TURN. ”The court effectively blessed the commission’s flouting of the law. But the larger impact is that it provides a blueprint for agencies that find themselves with laws that they don’t want to enforce.”

The lone bright spot for consumer groups was Baxter’s dissent. He concluded that the PUCEdison agreement violated the Bagley-Keene open meetings law because the PUC effectively changed Edison‘s electricity rates behind closed doors.

”This is a $3 billion travesty of justice for the state’s consumers,” said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights. ”According to the state Supreme Court, utilities are allowed to reap the benefits of deregulation — billions of dollars in profits — but when
deregulation collapsed, the consumers must bear its burdens.”

Had the court ruled the other way, it could have affected Pacific Gas and Electric customers. That utility is trying to emerge from bankruptcy protection, and part of its reorganization plan involves keeping rates higher than normal to help PG&E get out of debt. TURN had argued that, like the Edison deal, the PG&E plan violates the 1996 rate freeze.
Contact Michael Bazeley at [email protected]

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