Justices Support PG&E; on Diablo Canyon Costs

The California Supreme Court, rebuffing an appeal by a consumer group, upheld on Monday a $334-million annual interim rate increase to help pay for the problem-plagued $5.8-billion Diablo Canyon nuclear power plant.

By a vote of 6 to 1, the court turned down a challenge to a state Public Utilities Commission ruling allowing Pacific Gas & Electric Co. to temporarily retain the money it gained from fuel savings resulting from the use of nuclear power at the plant.

A nonprofit consumer organization, Toward Utility Rate Normalization (TURN), had argued that the commission, because it had not yet ruled on the validity of the project’s costs, lacked authority to grant interim increases unless the utility faced a “financial emergency” or there was no dispute over costs.

Action Held Permissible

The justices, upholding the broad discretionary authority of the commission, said the interim action was permissible, even though the PUC has yet to find the project’s costs justifiable. The commission’s ruling on what costs are reasonable--and thus can be passed on to ratepayers--is not expected until mid-1989.

Monday’s decision was the first by the new and more conservative court in a major utilities case--and both sides agreed the outcome might have been different under the more liberal and consumer-oriented court under former Chief Justice Rose Elizabeth Bird.

“We’re very disappointed, although I must say not surprised,” said Sylvia Siegel, executive director of TURN. “This is a new court, and it just isn’t used to dealing with these complicated and strenuous PUC issues.”

Siegel vowed “to keep fighting until we win,” saying the group will continue to urge the PUC to invalidate much of the cost of the project during forthcoming proceedings.

Commission’s Viewpoint

Timothy E. Treacy, an attorney for the PUC, agreed the case “could well have gone the opposite way under the Bird court,” but praised Monday’s ruling for upholding the commission’s broad discretionary power and its grant of interim relief to PG&E.;

“This plant was in service, providing electricity, and it’s only fair that people getting the electricity should share in part of the costs, even though the ultimate decision is still far down the road,” Treacy said. “Moreover, the increase is subject to refund, thus protecting ratepayers.”

PG&E; spokesman Dick Davin said the company was “very pleased” with the ruling. “We think this emphasizes the importance of Diablo Canyon, particularly during a drought year,” he said.

The court, in a majority opinion by Justice Marcus M. Kaufman, said the PUC was clearly empowered to seek a “balancing of interests” of the utility and current and future ratepayers.

Fairness Issue

“The commission was not faced with an ‘emergency’ in the sense of a threat to the utility’s survival, but the situation was one in which fairness to both the utility and the public required immediate action,” Kaufman wrote.

The court said that denying the utility interim help would result in “no injustice” only in the event the commission ultimately held PG&E;’s entire investment was improper and should be disallowed.

But in the more likely event that at least some costs are held proper, rejecting the interim increase now would only place a heavier burden on future ratepayers and deprive PG&E; of the cash flow it needs to operate effectively in the meantime, the justices said.

In dissent, Justice Stanley Mosk said that the increase was not justified by the utility’s need for cash flow.

“This justification for the increase could have a broad impact on the commission’s authority to grant interim increases since a utility, in common with other businesses, will often desire to increase its cash flow in order to keep down costs of raising capital,” Mosk said.

The justice added that there was “considerable merit” to TURN’s contention that the interim increase was “unfair to ratepayers.”

Long-Delayed Project

The case arose during years of difficulty for the Diablo Canyon project. The utility began constructing the plant on the coast in San Luis Obispo County in 1966. But 10 years later, with one unit complete and another nearly complete, it was discovered that the plant was less than three miles from an offshore earthquake fault. Federal regulators required PG&E; to redesign and reconstruct the plant under more stringent design criteria.

Meanwhile, amid those and other design problems, the project did not begin operation until May, 1985--and the total cost increased from an estimated $372 million to $5.8 billion.

PG&E; asked the PUC for a review to determine that its expenses were reasonable and could be recovered from ratepayers--and during the interim, that it be allowed to keep the money from fuel-cost savings rather than pass it on in the form of lower rates.

The commission in December, 1985, allowed the utility to put into effect an interim rate increase of $388 million annually--$53.8 million of it for operating and maintenance expenses and $334.2 million for investment-related costs--subject to refunds to ratepayers when a final determination was made on the validity of the costs.

Long Review Seen

The PUC said interim help was justified as a means of protecting the “financial integrity” of the utility during what would be a long and complex process of reviewing the project’s costs.

TURN challenged the PUC in a petition to the state Supreme Court, saying the increase of $334.2 million should not be allowed where the costs had not yet been found “just and reasonable.” The court, with votes from Bird, Mosk and Justices Allen E. Broussard and Cruz Reynoso, agreed to review the PUC ruling. Bird, Reynoso and Justice Joseph R. Grodin were defeated by the voters in November, 1986.

The new court on Monday upheld the PUC action, saying the commission had wide authority to grant interim increases, particularly in instances where there was a substantial capital investment and a prolonged delay in final determination of the validity of its costs.

Joining Kaufman’s opinion were Chief Justice Malcolm M. Lucas, Justices Broussard, John A. Arguelles and David N. Eagleson and Appellate Justice Harry F. Brauer of San Jose, sitting temporarily by assignment.