How PUC sold out public, saved utilities

Published on

The San Francisco Chronicle

If there was a bright spot to the California energy crisis, it’s that ratepayers knew, sooner or later, the whole sorry mess would come to an end.

Think again.

Just hours before thousands of Northern Californians lost power the other day — albeit from storm damage, not Enron‘s shenanigans — state regulators voted to keep socking ratepayers with some of the highest electricity bills in the nation.

“You can’t print in the newspaper the word for what’s happened to us,” said Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

The move breaks a promise last year by the Public Utilities Commission that power rates would come down as the supply of electricity stabilizes.

Also, insult to injury, the PUC said they’d be using consumers’ cash to bail out Pacific Gas and Electric Co. and Southern California Edison.

The two utilities originally pushed for deregulation of California’s electricity market and then cried foul when a rate freeze prevented them from passing along runaway costs to customers.

It seems like a long time ago, but it was only March 2001 when the PUC increased average power rates by 30 percent. Commissioners said at the time that the move was only temporary and that bills would come down again once wholesale electricity prices came back to earth.

OK, so juice is now trading for about $30 per megawatt hour, compared with as much as $3,000 during the darkest days of the energy crisis. (A megawatt, in case you’ve forgotten, is enough power to light 750 homes.)

But what happened? The PUC decided last week that not only are electricity rates not being rejiggered to reflect this new reality, but will in fact stay at absurdly high levels for the foreseeable future.

PUC President Loretta Lynch called the move “an unfortunate step,” but said it’s necessary for “stabilization of our energy market.”

That’s one way of putting it. Another is that state officials have already agreed to bail out Edison and are now negotiating in Bankruptcy Court to put PG&E back on its feet.

Passing along those multibillion-dollar costs to ratepayers is part of the deal to keep the utilities afloat and thus prevent California from plunging back into the dark.

“They’re stealing our money to pay off settlements we had nothing to do with,” said Nettie Hoge, executive director of The Utility Reform Network in San Francisco.

There’s another aspect to this thing too: direct access. That’s the term for big electricity users like the University of California that now purchase energy directly from power companies, rather than through a utility like PG&E.


Heavyweight users found this to be a cheaper and more reliable way of obtaining juice during the worst of the energy crisis. The downside for the rest of us, though, is that it left fewer utility customers paying off PG&E‘s and Edison‘s debts.

The PUC attempted to address this shortfall last week by imposing an “exit fee” on direct-access customers, but it set the fee at a below-wholesale level of $27 per megawatt hour.

Residential customers, meanwhile, will continue paying artificially high rates — state officials call it a “surcharge” — and will thus end up footing the bill for industrial users as PG&E and Edison claw their way back to solvency.

“It’s one of the worst outrages I’ve ever seen,” said San Francisco consumer advocate Harry Snyder. “The PUC stuck the knife in and they keep twisting it.”


Then there’s the avalanche of litigation that’s emerged from the energy crisis. As ratepayers keep getting soaked, a legion of lawyers is getting rich off the state’s power woes.

Most interestingly, a federal appeals court ruled in September that the bailout deal reached with Edison — the one partly necessitating higher rates — probably violates state law.

The ruling has ramifications for PG&E because the PUC‘s plan to get the utility out of bankruptcy shares a number of elements with the Edison deal.

The federal court referred the matter to the California Supreme Court. If it, too, finds that the bailout was illegal, it seems almost certain that lawmakers will pass legislation accommodating the deal rather than plunge the state’s two biggest utilities back into financial uncertainty.

As for PG&E, a bankruptcy judge in San Francisco will this month begin weighing the utility’s own Chapter 11 reorganization plan against the PUC‘s alternative proposal.

In a nutshell, PG&E wants to transfer its power plants and transmission system to new companies that would escape state oversight, while the PUC wants to keep the utility intact and under its thumb. At the moment, it looks like the PUC plan has the edge among creditors.

Then there’s the ongoing investigation into price manipulation and suspected collusion by power companies. The probe and related court cases could drag on for years.

What’s this mean for ratepayers? Big, fat electricity bills for a long time to come as the piper finally gets paid for one of the dumbest experiments with deregulation in U.S. history.

And since no one thought to require the utilities to pay consumers back once they return to fiscal health, this is cash most people will never see again.

“There is no exit strategy for the energy crisis,” Snyder said. “Nobody knows how this is going to end.”

Only that it’ll cost us all a bundle.

Consumer Watchdog
Consumer Watchdog
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