PUC Reportedly Will Reject Power Purchasing Proposal

California regulators look set to require that the state’s three investor-owned utilities continue to buy all their power through the California Power Exchange, or CalPX.

The ruling could be made at a California Public Utilities Commission meeting Thursday, although sources close to the PUC suggested that controversy about a separate but related matter could delay a decision.

Sempra Energy unit San Diego Gas & Electric is seeking permission to buy at least 80% of its power through the exchange and to split with customers any profits or losses they make buying the balance from other sources.

Such a plan, known as performance-based rate-making, has been used for sales of other commodities, such as natural gas.

CalPX was launched in March 1998 as part of a restructuring of California’s power industry that allowed most of the state’s customers to choose their electricity supplier.

Regulators gave CalPX a huge initial boost by mandating that California’s three investor-owned power utilities buy and sell all their electricity through the exchange during the transition to a competitive market.

The two other investor-owned utilities affected are Rosemead-based Southern California Edison, a unit of Edison International, and San Francisco-based Pacific Gas & Electric Co., a subsidiary of PG&E; Corp.

Last month, an administrative law judge reviewing the case proposed that the San Diego utility’s proposal should be denied amid concern that it could reduce exchange liquidity at a time when the other two investor-owned utilities remain obligated to buy all their power through CalPX.

Sources close to the PUC said commissioners appear likely to back the part of the judge’s recommendation related to San Diego Gas & Electric’s plan.

“We’re disappointed the judge has not recognized the value of performance-based rate-making on the electric side,” said Wayne Sakarias, a director at San Diego Gas & Electric.

During the transition to competitive markets in California, the three utilities are allowed to collect “stranded” costs, which are expenses incurred in a regulated market that may not be recoverable in a competitive environment. These include massive investments in nuclear power plants.

The costs are recovered through a charge to customers and must be completely collected by March 31, 2002.

San Diego Gas & Electric completed the recovery of its stranded costs in June 1999 and has argued that the transition ended for it at that time.

Southern California Edison and PG&E; are still recovering their stranded costs.

The judge recommended that a decision should be made at a later date on whether the utilities should be required to use the exchange after all three have completed cost recovery.

Another aspect of the judge’s proposal, related to who will foot the bill for some uneconomical contracts--mainly with suppliers of renewable power--could result in a delay to the PUC’s overall decision.