The San Diego Union-Tribune

Consumer advocates yesterday said a proposal for the California Public Utilities Commission to relinquish review of state electricity purchases would amount to an historic loss of consumer protection in the state.

“This act would throw out 90 years of populist reform attempting to root out corruption in government and curb corporate power,” said Harry Snyder, senior advocate for Consumers Union in San Francisco. “I think it would be illegal. I don’t think the PUC can give away authority granted to it by the people of California.”

On Thursday, PUC president Loretta Lynch and state officials said they had reached agreement allowing the state to recoup the costs of its power purchases from California utility customers without a review of those charges by the commission.

The deal, which must be approved by the full commission later this month, allows the state to proceed with a planned $12.5 billion bond offering and about $43 billion in long-term power purchases.

Snyder and other consumer advocates say eliminating PUC review of state power purchases would gut the primary purpose of the commission — protecting citizens from unfair electricity rates — and say they will urge the commission to reject the plan when it comes up for a vote Feb. 21.

A spokesman for Gov. Gray Davis said the plan is in compliance with state law. Barry Goode, Davis’ legal affairs secretary, said the state constitution limits the PUC‘s authority to setting rates for private utilities.

“The Department of Water Resources is not a private corporation,” Goode said. “The PUC has never, ever regulated public entities. The PUC does not regulate government entities.”

For example, he said, the PUC has no authority over municipal power authorities.

A key component of the PUC‘s mission since 1911, when it was established as the Railroad Commission, has been to assess and approve utility rate proposals, using costs of production and reasonable profit returns as a yardsticks.

Ken Rose, senior economist at the National Regulatory Research Institute of Ohio State University, said utilities commissions were intended to have the expertise and independence needed to determine the validity of utility industry rate requests.

“The idea was that competition itself could no longer discipline the industry,” Rose said. “And the issue was so complex that legislators could not deal with it on their own.”

The proposal to bypass PUC review of rates announced earlier this week was part of an agreement to break a logjam blocking a state bond issuance. The planned $13 billion bond is needed to repay the electricity purchases made by the state last year. Earlier the Legislature empowered the Department of Water Resources to make purchases because the state’s utilities were financially incapable of fulfilling their traditional role as power purchasers.

The same law contained what consumer advocates then criticized as an ominous provision: It allowed the water department to make its own determination as to whether the prices it would pay for power were reasonable.

In effect, the legislation seemed to pull the state back to the era before there was a utilities commission reviewing rates on behalf of consumers. The amount of money involved turned out to be huge because the water department went on to sign contracts for about $43 billion in future electricity deliveries.

For months the utilities commission balked at stepping aside from its review of those purchases. Lynch made known her belief — shared by many others — that the purchases were vastly overpriced. Lynch said yesterday that the commission’s authority to review state power purchases was not an issue.

“I would like the commission to have review authority over DWR’s costs, but that is not the law,” she said.

The primary issue was how the state was structuring payments on the planned bond offering, Lynch said.

Heller, of the Foundation for Taxpayer and Consumer Rights, said consumer protection is the bottom line.

“The constitutional authority that the state set up to protect consumers from unreasonable rates is being thrown out the window and an obscure agency in Gov. Davis’ fiefdom will now control prices without oversight” Heller said.

San Diego lawyer Michael Aguirre said he believes that by failing to ensure state rates are just and reasonable — as determined by the utilities commission — California officials are failing to do what they want federal officials to do, namely to ensure wholesale electricity rates comply with this standard.

“I think there has to be a legal challenge if this is approved by the commission,” said Aguirre, who is running for district attorney of San Diego County.