The Associated Press

A proposed agreement between state power regulators and the agency that buys electricity for millions of Californians would allow the state to raise electric rates with no outside review, consumer advocates criticized Wednesday.

The state Public Utilities Commission issued the agreement, which explains how it will work with the state Department of Water Resources to ensure the state is repaid for the billions it has spent buying electricity for the customers of three financially ailing utilities.

In the agreement, the PUC pledges to assess electric rates at least on an annual basis and adjust them so enough money is coming in to pay for the DWR’s power buys and administrative costs.

But if the state finds that a rate hike is necessary to pay its bills, the PUC has waived the right to review its decision and deny it if it is deemed unfair to California ratepayers, said Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights.

“This gives an unelected unaccountable state agency … the unilateral right to order rate increases for the next 15 years,” Rosenfield said. “Every mistake they could possibly make will also be passed along to ratepayers.”

Geoff Dryvynsyde, a legal adviser to PUC President Loretta Lynch, said it’s true the PUC would be “no longer in charge of determining what costs are reasonable before it changes rates.” Dryvynsyde said that was the intent of the state legislators when they passed the legislation earlier this year that prompted the arrangement.

It was not immediately clear from the document whether the PUC would need to raise electric rates soon to cover those costs. Loretta Lynch, PUC president, said last week that the PUC likely won’t have to hike rates – because a recent rate hike is providing enough money.

“The document would have a lot more importance if it was released with the numbers that it will work with in reality,” said Mindy Spatt, a spokeswoman with The Utility Reform Network, a consumer advocacy group.

The DWR plans to release a statement on its financial needs on Friday, said DWR spokesman Oscar Hidalgo.

“The revenue requirement now will tell the PUC what we need as a department to cover department costs for everything that we’re doing, from administration to purchasing power,” Hidalgo said. “That’s where the meat’s going to be.”

The PUC agreement is a vital step toward the state’s efforts to issue some $ 13 billion in bonds to recoup the more than $8 billion it has spent since January buying electricity. The state intends to spend $43 billion on electricity over the next 20 years.

The state wants to improve its credit rating to lower interest rates on the bonds, which will be paid off by ratepayers over 15 years. The state hopes to assure Wall Street that there is a reliable stream of money rolling in from electric rates.

“The rate agreement basically defines the process by which the PUC and the department will act,” Hidalgo said.

The proposed relationship between the two state agencies troubles Commissioner Richard Bilas, a member of the PUC.

“I’m used to a system in which there are some checks and balances and I want to know what institution is going to provide checks and balances on DWR’s revenue requirement,” Bilas said.

“Traditionally the PUC has provided that oversight. If we are required to satisfy DWR’s revenue requirement then we no longer have that responsibility.”

Spatt said both the DWR and the PUC in the arrangement should strive to avoid further rate hikes.

“To finance what they need to finance without a rate increase should be the goal of everybody concerned and we think there are modifications that can be made to help move us toward that goal,” Spatt said.

Spatt said TURN hoped the PUC would trim the agreement so that consumer rates can be raised only to cover increasing costs of buying electricity, not the DWR’s administrative costs.

In May, the PUC issued a record rate increase that raises electric rates by roughly 38 percent for residential ratepayers who use the most power, and by varying amounts for farmers and businesses. That followed a roughly 10 percent rate hike in January.

The state has bought electricity for the customers of Pacific Gas and Electric Co., Southern California Edison Co. and San Diego Gas and Electric Co. since January, when the utilities warned the state that high power prices and the inability to recoup their costs through frozen electric rates were driving them into debt.

PG&E filed for federal bankruptcy protection April 6. Edison and SDG&E both have agreed to sell their transmission lines at above market value to the state for to make up for their losses, though the Legislature has not decided whether to approve the deals.

The PUC will take comments on the agreement until Aug. 1.