PUC action, shrinking bill help avert increase

San Diego Union-Tribune

The state utilities commission yesterday spared SDG&E‘s electricity customers from another rate hike, but consumer advocates say a separate action by the commission that clears the way for the state to complete an $11 billion bond offering will cost utility customers an historic protection.

The SDG&E rate increase was avoided because of a lower-than-expected bill for state power purchases and because of the way the five-member California Public Utilities Commission opted to allocate those costs.

The state’s early estimate of nearly $10 billion for the purchases fell to about $9 billion under the agreement approved yesterday by the PUC.

The cost fell, said a commission expert, because the state is now expected to avoid an interim loan payment of nearly $350 million and because of what the expert characterized as some $610 million in miscalculations.

In addition to the shrinking bill, the commission voted 3-2 to approve a cost-based approach to allocating the burden of payment instead of a so-called postage stamp or single price for all state utility customers.

Because the commission found costs lower in SDG&E‘s territory, the amount required from local customers is less than it would have been under the postage stamp approach. SDG&E strongly advocated for a cost-based allocation.

The combination of the cost-based method and the shrinking bill overall reduced the bill for SDG&E customers from $1.5 billion to $980 million in the final agreement.

“It is not expected to require a rate hike,” said Paul Clannon, director of the PUC‘s energy division.

Commissioners Henry Duque and Richard Bilas voted against the agreement, while Commissioner President Loretta Lynch was joined by Commissioners Geoffrey Brown and Carl Wood in supporting it.

Electric rates for customers of SDG&E and other utilities have risen by about 40 percent since the power crisis struck in 2000. Advocates of the state deregulation plan, passed in 1996, promised a rate reduction.

At least some observers suspect SDG&E customers are benefiting — at least temporarily — from the race to elect a new governor this November.

“There is no question in my mind that political considerations helped us avoid a rate hike for now,” said Michael Shames, executive director of the Utility Consumers’ Action Network. “In a political year, it is very hard for the administration in power to countenance or support rate hikes. I suspect there will be rate reductions.”

For its part, SDG&E had assembled a large coalition of business groups and others to press for the cost-based allocation ultimately adopted by the PUC.

“We are very pleased and want to thank all our customers who joined with us to achieve the outcome,” said Ed Van Herik, an SDG&E spokesman.

The separate action by the PUC regarding state power purchases, meanwhile, drew a mixed reaction — hailed by the governor and some other state officials, sharply criticized by consumer advocates.

After rejecting a similar agreement last fall, the commission voted 4-1 to relinquish any oversight it may have had over electricity purchases by the state Department of Water Resources. The agreement to step aside satisfies a condition demanded by potential investors for the state to proceed with a bond sale of up to $11.1 billion, up $250 million from an earlier ceiling proposal.

“This is good news for California because rates will not rise,” Gov. Gray Davis said. “This is a giant step forward.”

But in casting his lone dissenting vote, Duque said, “This is a blank check for DWR to pay for all power purchases, no matter how imprudent.”

Lynch said the agreement approved yesterday is superior to the one rejected earlier because it gets the state out of the business of buying power and returns that role to the utilities.

Lynch added that the commission also retains its options for challenging the long-term power contracts.

Along with Lynch, commissioners Brown, Bilas and Wood voted for the agreement.

Consumer advocates said the PUC agreement with the water department and the terms of the bond offering will undercut efforts to renegotiate the long-term contracts because they guarantee power suppliers payment under current agreements, which consumer advocates and others say overcharge the state by some $20 billion.

Doug Heller, an advocate with the foundation, added that as a result of the PUC action, “Gov. Davis has hidden electricity oversight behind an iron curtain of unaccountability.”

Craig Rose: (619) 293-1814; [email protected]