The 9th Circuit Court also casts doubt on the PUC’s proposal to rescue PG&E
SAN FRANCISCO: A federal appeals court said Monday it doubts the legality of a deal struck by California regulators to rescue the state’s second-largest utility from the brink of bankruptcy in 2001.
The decision against Southern California Edison and the state Public Utilities Commission could spell doom for the Edison agreement and also for a separate PUC plan for resolving the bankruptcy case of the state’s largest utility, Pacific Gas and Electric Co.
Both plans rely on what may now be illegal customer-financed bailouts.
The PUC‘s proposal for PG&E will go before a federal bankruptcy judge for confirmation in November, in competition with a radically different plan drafted by PG&E. The legality of each plan will be a major issue.
The Edison deal, known as a consent decree, went into effect last winter. It was the result of confidential settlement talks in a federal lawsuit that had been filed by the utility to boost its retail rates.
The 9th Circuit said the deal requires “huge changes in the rates SoCal Edison customers will pay” – half of the $6.5 billion in debts incurred in the recent energy crisis, when wholesale electric rates skyrocketed and retail rates were frozen.
U.S. District Judge Ronald Lew of Los Angeles, who presided in the Edison lawsuit, approved the agreement immediately, and the 9th Circuit at the time turned down a petition from The Utility Reform Network to block it from taking effect.
On Monday, however, a new panel of circuit judges ruled in favor of the consumer advocacy group, noting a “serious question” about whether the deal illegally circumvented state laws on utility rates and the procedures for setting them.
If so, the circuit judges said, “we would be required to vacate it as void” because “state officials cannot enter into a federally sanctioned consent decree beyond their authority under state law.”
Using a recently adopted procedure, the 9th Circuit referred the question of state law violations to the California Supreme Court.
If the state justices accept the case, their word will be final. A month ago they refused without explanation to take up a separate lawsuit on the same issues.
If they again refuse to rule, the 9th Circuit said it would take on that
task. It left little doubt about what its decision would be.
The circuit judges spelled out a list of state laws that the deal “appears to violate” – by keeping rates high and agreeing in secret to do so. The agreement – “which extinguished ratepayers’ refund rights, precluded a reduction in rates that were otherwise subject to reduction and granted SoCal Edison significant concessions for years to come” – should have triggered state laws requiring public hearings and open decision-making, wrote Judge Sidney Thomas of Billings, Montana.
The PUC issued a statement saying it was “confident that the settlement ultimately will be upheld by the California Supreme Court,” and Edison said it believed the “state law objections are not impediments.”
But TURN Executive Director Nettie Hoge said, “The federal court killed the settlement and sent it to the California Supreme Court for burial.”
The Foundation for Taxpayer and Consumer Rights said the ruling means additionally that the PUC has no authority to pursue its PG&E plan.
The Bee’s Claire Cooper can be reached at (415) 551-7701 or [email protected]