PUC loses power to set rates in deal

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Energy bond plan buoys investors, but angers consumer advocates

The San Francisco Chronicle

The state Public Utilities Commission would lose its authority to set electric rates under a tentative deal announced yesterday that would transfer that power to the state Department of Water Resources.

The deal settles a feud between the state Public Utilities Commission and Gov. Gray Davis over how Californians will reimburse the state treasury for money spent to keep on the lights during last year’s energy crisis.

If approved by the five-member PUC later this month, the agreement would pave the way for getting Wall Street’s backing for California’s issuance of $12.5 billion in energy bonds.

That bond money is needed to repay the state treasury after the water resources department took over the job of buying wholesale electricity last year. The department was forced into that role when Pacific Gas and Electric Co. and other major utility companies hit financial bottom when prices for electricity skyrocketed.

The plan to shift the PUC‘s authority to set rates drew fire from consumer advocates.

“While the importance of oversight of the energy system becomes more evident each day, the PUC has proposed to hand over scrutiny of electricity rates to an unaccountable agency,” said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights.

The Department of Water Resources stepped in and borrowed $6.5 billion from the general fund to keep the lights on. In addition, the state took out billions more in loans for power purchases.

State Treasurer Phil Angelides planned last year to issue a $12.5 billion bond — the largest such bond sale in U.S. history — to reimburse the state. The plan was for money from Californians’ electricity bills would be used to pay back the bonds.

Wall Street financiers warned the state an agreement ensuring the bonds would be paid back was necessary.

But the PUC last October blocked a proposed repayment plan. Commission President Loretta Lynch objected to the plan in part because it allowed the Department of Water Resources to simply tell commissioners what the state’s electricity rates should be, stripping the commission of its right to set rates.

The new deal doesn’t change that, but requires the state agency to prove its costs at a public hearing.

“There will be a public process,” Lynch said. “That’s the best we could get.”

Consumer groups said that wasn’t good enough.

“This offers no new protections,” said Nettie Hoge, executive director of The Utility Reform Network. “It looks like the PUC put on kid gloves for this fight.”

The proposed agreement would bill electric users each month to pay off the bonds, as well as pay for long-term energy contracts the governor signed last year.

Davis and Angelides both issued statements yesterday praising the deal and saying it was the best way to ensure the state would be repaid for energy costs.

Financial terms of the agreement were not yet final and will be released in the next few weeks. The final amount of the bond sale — and whether electricity rates might be raised — will depend on those numbers.

Lynch said current projections indicate rates would not be raised.


The state Department of Water Resources can require the Public Utilities Commission to raise consumer rates to cover the cost of electricity purchased on behalf of California’s utilities. Under a tentative agreement between the two agencies that could pave the way for a $12.5 billion energy bond sale, the PUC retains the authority to decide how increases would be split between residential and industrial users. A story Friday gave incomplete information about the agreement. (02/06/02, P.A2)

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