Opinion Favors SDG&E; Paying for $29 Million in Purchases : Judge Says Utility Should Absorb High Costs

A state Public Utilities Commission law judge has recommended that San Diego Gas & Electric customers not be charged for $29 million of expensive electric power that the utility in recent years imported over a transmission line that connects it with utilities in Southwest states.

SDG&E; will ask the PUC to reject the law judge’s recommendation, according to utility spokesman Lee Haney. SDG&E;’s shareholders would absorb the $29-million penalty if the PUC endorses the recommendation later this year.

Michael Shames, executive director of San Diego-based Utility Consumers Action Network, described the $29-million total as “low.” UCAN had argued that SDG&E; should have absorbed slightly more than $100 million because it signed ill-advised electrical purchase contracts that ignored cheaper electricity available elsewhere.

However, Administrative Law Judge Brian Cragg ruled that most of the electricity that SDG&E; contracted to buy from utilities in Arizona and New Mexico was acquired at reasonable prices.

The PUC could accept, reject or modify Cragg’s ruling. If the PUC accepts the recommendation, about half of the $29 million penalty would be refunded to SDG&E; electric customers. The remainder would be used to reduce rates in the future.

SDG&E; has about 70,000 business and residential customers in southern Orange County.

The complex, 172-page decision that was released Friday capped a 1-year review of SDG&E; contracts dating back to 1978, including a 12-year contract that SDG&E; signed in 1988 with Public Service Co. of New Mexico.

While Shames was disappointed by the recommended $29-million penalty, he described the accompanying report as “a very important and good decision. It’s a toughly worded document that puts SDG&E; on clear notice that (the PUC) will not allow ratepayers to pay for questionable or uneconomic contracts in the future.”

SDG&E; was “disappointed that (Cragg) endorsed the philosophy of hindsight review” of purchase contracts, according to Haney.

“At the time we entered into these contracts they were good contracts,” Haney said. “The economics of those contracts didn’t change. We bought a secure supply of electricity over a fairly long period of time.”

The contracts in question involved electricity that SDG&E; imported over the Southwest Powerlink. SDG&E; built the $208-million transmission line in order to gain access to generally low-cost electrical power that utilities produce in the coal-rich Southwestern states.