Commission would yield authority over rate hikes

The Oakland Tribune

SACRAMENTO — Energy regulators Monday backed the Davis administration in keeping what critics call the lion’s share of California’s largest electricity rate hike, a decision which foes say threatens utility recoveries and a showdown that could imperil the state budget’s essential services.

The California Public Utilities Commission also delegated much of its responsibility to protect customers from unreasonable rate increases to the state.

The wide-ranging proposed decision covers a key aspect of the fiscal plan to bail the state out of the power crisis.

Under the controversial arrangement, the PUC will be forced to raise or lower consumer rates whenever it is deemed necessary by power buyers at the state Department of Water Resources, which in January began buying electricity on behalf of utilities financially shattered by the power crisis.

The PUC‘s draft decision is essentially an agreement between regulators and the DWR that’s aimed at ensuring the state has funds to buy power and to finance about $13 billion in bonds, intended to reimburse government coffers for past power purchases.

“We think we’re going to do right by all, with both covering DWR costs and the reasonable costs of utilities,” said PUC President Loretta Lynch. “We are doing our part to move the bonds forward.”

But Pacific Gas & Electric Co., Northern California’s bankrupt investor-owned utility, says the agreement leaves it too little for its ongoing operations and past debts.

The average 37 percent rate hike for the heaviest residential users, which began appearing in customers’ bills in June, along with an earlier smaller increase, amount to an average hike of 3 cents per kilowatt-hour.

The DWR says it needs just over half of that — 1.6 cents per kilowatt-hour — to cover state costs, for a total of about $12 billion from utility rates.

In an attempt to bolster its share, PG&E has begun a series of administrative and court challenges.

State officials acknowledge that the discord surrounding the pact — meant to reassure Wall Street that bond investors would be repaid — could derail the bond issue.

Further postponement of the bond issue, the largest municipal offering in U.S. history, could crimp the state’s cash flow and even force cutbacks in essential state government services, sending shock waves through the economy.

But the PUC‘s actions Monday moved the state and PG&E further apart.

The utility said regulators, making a change in the administration plan, shifted $500 million in costs over a six-month period from Southern California to its north-state customers.

This would lock our customers into 40 percent to 55 percent higher rates for DWR power over the next 10 years compared with customers in Southern California, according to a company statement.

“This massive cost shift was not proposed by DWR, discriminates against PG&E‘s customers, and has not been subject to review, due process or cost justification by DWR or the PUC,” the utility said.

PUC officials said the modification was designed to make Northern California customers pay the actual expense of providing them service, compared with Southern California, where costs are cheaper because of generation and transmission factors.

Addressing the other heavily controversial aspect of the agreement, Lynch said the PUC had little choice but to delegate much of its future ratemaking authority to the department.

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, called the decision a “devastating and costly dereliction of the PUC‘s duty.

“They’re abdicating their responsibility under the state constitution to monitor and scrutinize the purchases of power,” Rosenfield said.

Lenny Goldberg of the Utility Reform Network agreed but did laud the commission’s decision to cut off utility customers’ ability to buy electricity from outside utilities after July 1 as “absolutely necessary.”

Utility customers’ right to choose their own energy provider would be temporarily suspended, a move officials say is needed to ensure there are customers for power the state is buying.

Legislation that allowed the state to buy power on behalf of utilities called for the suspension of “direct access,” a major provision of the state’s failed experiment with deregulation, which has been largely blamed for the energy crisis.

The PUC‘s draft decision is expected to be approved at a Sept. 6 commission meeting.