PUC to Chart Varied Territory

The 2,000 decisions that the California Public Utilities Commission will make during the next year range from setting rates for tiny “mom-and-pop” phone companies and water suppliers serving the state’s hinterland to allocating billions of dollars in revenue sought by some of the world’s largest privately owned utilities.

The most controversial matters involve how financial responsibility should be divided for the hundreds of millions of dollars in construction cost overruns at the San Onofre and Diablo Canyon nuclear generating stations.

Other highlights are the regularly scheduled general rate reviews for Southern California Edison and General Telephone and proposed rules for private meetings between commissioners and utility lobbyists.

In the San Onofre case, Edison was outraged by a long-awaited PUC decision last October finding that the utility’s shareholders--rather than its customers--should shoulder $344.6 million of the $4.51-billion cost of building the huge nuclear plant in northern San Diego County.

The $344.6 million represents a portion of the cost overruns for the plant, which was finished in 1984. When first proposed in 1970, the facility was expected to cost $437 million and be completed by 1977.

The company maintains that extra costs and delays were either unforeseeable or the consequence of safety requirements imposed by federal regulators following the Three Mile Island nuclear accident.

A PUC hearing officer had accepted that reasoning in recommending that utility customers pay the full bill, a recommendation that was rejected by the commission on a 3-2 vote.

In a related case, Edison shareholders also face having to assume an additional $52 million in overcharges stemming from the company’s $1.5-billion investment, a 16% share, in the Palo Verde Nuclear Generating Station near Phoenix.

If Edison wins a reduction in the San Onofre case from the PUC, its liability for Palo Verde will go down as well--to the tune of $20 million for every $100 million dropped from the San Onofre bill.

Even more controversial than San Onofre is the construction cost of the Diablo Canyon nuclear power plant, built in San Luis Obispo County by Pacific Gas & Electric.

William Aherne, director of the PUC public staff, is expected to release its recommendation in that case on March 2. Public hearings will follow before the commissioners finally decide how much of trouble-plagued Diablo’s $5.8-billion price tag should be picked up by the utility’s customers.

While customers pay for cost overruns through increased bills, a company must subtract such charges from its operating earnings.

Some other major issues before the PUC:

Electricity. Southern California Edison has filed for a total of $524.9 million in revenue increases over the next three years--$301.5 million in 1988, which would be a 5.4% increase; $125.7 million, or 2.3%, for 1989, and $97.7 million, or 1.8%, for 1990.

The increases are needed, the company says, to finance the upgrading of its power transmission and distribution network, building new facilities and to cover anticipated higher operating costs.

If approved in full, the monthly bill for consumption of 500 kilowatt-hours of electricity, typical of a residential customer, would rise to $51.31 from the present $42.88. Hearings begin next month, with a decision due in December.

Natural Gas. The PUC last December adopted a policy aimed at enabling gas utilities to take advantage of federal deregulation, but must now devise specific rules under which Southern California Gas, San Diego Gas & Electric and PG&E; carry it out.

Major gas customers now will be able, for example, to buy gas from one company and have it transported by another firm or to retain “standby” service with the utility while temporarily using a cheaper fuel, such as oil.

According to Aherne, the goal was to protect residential and other customers who have no supply alternatives by making it more attractive to major gas users to remain customers in one form or another and thus continue to support the cost of the network.

In addition, Southern California Gas had planned to seek a $158-million rate increase effective next year, but the company and the public staff have since proposed that the PUC delay the usual yearlong review for two years in light of current low inflation rates.

The company would be eligible for annual “cost of living” increases and revision of its authorized rate of return on its investment, however. The delay, if approved, would make it six years between basic reviews of the gas company, a point the consumer group Toward Utility Rate Normalization, or TURN, considers “outrageous.”

The PUC will hear the public’s view of the proposed delay at a hearing starting at 10 a.m. Thursday at 107 S. Broadway.

Telecommunications. American Telephone & Telegraph, maintaining that adequate competition is developing in the California long-distance market, seeks greater flexibility in setting its rates for calling within the state, where it claims to have lost $33 million in the three years since divestiture.

Its competitors--chiefly MCI and US Sprint but also scores of smaller, sometimes tiny regional carriers--are free to set their prices as they wish, though they generally maintain rates linked to AT&T;’s. (The PUC sets AT&T;’s rates for calls within the state, and the Federal Communications Commission does the same for interstate calls.)

“It’s not clear that long-distance is turning into a competitive market,” Aherne said. “The others are price followers, and AT&T; is spending like crazy to maintain its dominance.”

- Pacific Bell still awaits final disposition of about $300 million in disputed revenue sought by the phone company in its 1986 rate case, in which Pacific had sought a $471-million rate increase but instead saw the PUC trim its revenue by $120 million.

“This is still the first big look at PacBell since the split of AT&T;,” Aherne noted, “so we’ve been paying that a lot of attention.” A decision is expected this spring.

- Pacific also proposed increasing residential rates and then freezing them until 1990 in an effort to lighten its regulatory burden--a growing theme among utilities.

Aherne doesn’t object to freezing rates, but said that with low or declining inflation and interest costs along with improving productivity, they should probably drop before the freeze.

- General Telephone last month filed its first general rate case since 1983, requesting an unprecedented $114-million cut in revenue, effective in 1988. Some consumer advocates consider the cut inadequate in the face of low inflation and interest rates and presumed improvements in productivity.

Diversification. San Diego Gas & Electric, seeking to become more than just a utility, has in recent months acquired a real estate development company, a New York-based computer software business and a natural gas distributor.

Its unregulated Pacific Diversified Capital subsidiary, armed with $65.7 million in equity capital, expects to have 12 diversified businesses generating 10% of SDG&E;’s earnings by 1992.

Last year, SDG&E; sought approval to reorganize under a holding company, not unlike the parents of Southern California Gas (Pacific Lighting) and Pacific Bell (Pacific Telesis Group). The commission approved the concept but attached a number of conditions that SDG&E; considered unacceptable.

Under the new commission, SDG&E; will likely try again, said Chairman Tom Page, who claims that a holding company would make it easier for regulators to separate utility revenues from those of the unregulated businesses.

The PUC’s concern has been to ensure that utility customers don’t wind up subsidizing these unregulated enterprises--the same problem it has with Pacific Telesis.

Trucking. The commission began deregulating trucking in 1979 but came to regret that effort at stimulating competition in intrastate hauling.

Removal of state supervision has led to instances of predatory pricing, producing fewer carriers, some of which have slashed maintenance and safety budgets to stay in business. Now the PUC is beginning to re-regulate trucking, requiring carriers to justify rate changes based on costs.

Tour buses. The Legislature leaned on the commission to tighten scrutiny of tour buses after the crash of a Starline sightseeing bus that killed 21 elderly Santa Monica and Los Angeles residents last May 30 on Highway 395. The PUC declared a moratorium on issuing charter permits pending review of safety regulations, and last week strengthened these rules covering chartered buses.

Utility Lobbying. A proposed rule would require commissioners to disclose so-called ex parte meetings with utility executives.

“Without a uniform operational ex parte rule, the commission will always remain vulnerable to accusations that a controversial decision was tainted by off-the-record private communications or lobbying of commissioners while the case was pending,” former Commissioner Priscilla C. Grew wrote in a letter published in The Times shortly before leaving the PUC last Nov. 1.

Times Staff Writer Greg Johnson in San Diego contributed to this article.