Probe of Utility Money Transfers Ordered

After dozens of protesters assailed them for a recent electricity rate hike, state regulators Tuesday ordered an investigation into the transfer of billions of dollars from utilities to parent companies and whether the parents failed to help them during the energy crisis.

“This order is absolutely necessary to establish the credibility for any rate hike,” said California Public Utilities Commission member Geoffrey Brown. “We should be assured no assets were transferred imprudently to the parent companies and no assets in the parent were available” to help financially troubled utilities.

The commission adopted the order on a 4-0 vote during an uproarious meeting that started with 1 1/2 hours of public testimony and was disrupted repeatedly by a few dozen protesters who chanted “public power now” and urged state takeover of the utilities.

The PUC probe targets Pacific Gas & Electric Co., Southern California Edison Co., San Diego Gas & Electric Co. and their respective holding companies.

Spokesmen for the parent companies--PG&E; Corp., Edison International and Sempra Energy--denied any impropriety and said previous PUC audits have found no wrongdoing.

“The commission, which is probably faced with one of the greatest challenges since the state was formed in 1850, is wasting its time reviewing old ground,” said PG&E; Corp. spokesman Greg Pruett.

Commissioners expressed concern that the utilities transferred billions of dollars to their holding companies while experiencing financial difficulties. They said the parents evidently did not help out the utilities, which sought rate increases to cover their excess costs.

“We will examine whether this apparent failure violates [PUC regulations] that the holding company give ‘first priority’ to the capital needs of its utility subsidiary,” the order said.

The PUC said the parent companies disbursed much of the money as dividends, stock repurchases and other payments.

Sempra spokesman Art Larson dismissed any suggestion that the parent neglected SDG&E;, noting that it invested $324 million in the utility last year. “It’s the most in the past seven years,” he said. “That speaks for itself.”

PG&E; Corp.’s Pruett said millions of dollars in dividends and loan repayments to shareholders would have been made whether there was a holding company or not. “It’s a specious argument [by the PUC],” he said. “It’s a smoke screen.”

Since early February, the commission had repeatedly delayed ordering the investigation, in part to avoid jeopardizing the state’s recent negotiations for the purchase of the power grid and other assets of Southern California Edison and Pacific Gas & Electric Co., which say they are billions of dollars in debt and in danger of bankruptcy.

Edison International Chief Financial Officer Ted Craver declined Tuesday to say whether Edison is close to signing an agreement, noting, “Discussions are at a critical point right now.”

Under the proposed deal, the state would purchase Edison’s massive high-voltage transmission system for $2.76 billion and receive other assets. The utility could use the cash to restructure debt.

“It is not a done deal; it is very close to final,” said Joseph Fichera, a consultant representing Gov. Gray Davis in negotiations with Edison.

However, a top utility executive, speaking on the condition of anonymity, said, “There are serious disagreements on major issues.”

The state’s talks with PG&E;, which had been dormant for weeks, resumed Tuesday as that utility’s negotiators met with the governor’s staff, according to a company official.

If a deal for transmission lines can be struck, it is subject to approval by federal regulators.

Davis said Tuesday that if federal officials reject any deal, his “Plan B” is to seek state ownership of private utilities’ hydroelectric plants.

“We are then entitled to have assets of comparable value,” Davis told reporters. “We have told utilities by that we mean their hydro assets, because those are moneymakers.”

PG&E;, which operates more hydroelectric plants than Edison, has repeatedly made it clear that it does not intend to give up those operations.

Davis said he is buying five minutes of television time at 6:05 p.m. Thursday to discuss California’s energy situation.

The PUC, in other action to ease the energy crisis, on Tuesday adopted a measure that allows the Department of Water Resources to sell $12 billion to $14 billion in bonds to help pay for the state’s power purchases for cash-starved utilities and their customers.

That is a significant increase over the maximum $10 billion approved by the Legislature.

The PUC next must devise a formula to divide customer electricity revenue among the utilities, power providers and the Department of Water Resources.

Edison executives said they fear that the PUC is underestimating electricity costs--in particular those of the alternative, natural gas fired generators that the commission recently ordered the utilities to resume paying. Even with last week’s rate increase of about 40%, Craver said customer revenue could fall short, which may add to the utility’s debt.

“At best, the utility is standing still: Its cash position has not improved,” said Craver. “At worst, it’s going backward.”

A controversial PUC program that pays companies to use less electricity got an overhaul to make it more attractive to business and more useful in helping to avoid blackouts.

Companies that no longer wish to participate in the so-called interruptible power program will be allowed to leave without penalty, but must repay any discounts received since Nov. 1.

Julie Puentes, executive vice president of the Orange County Business Council, said the group is pleased that businesses will no longer be penalized for past failures to interrupt power. But she said the decision does nothing to help companies that did comply and lost business as a result.

“They were good corporate soldiers,” Puentes said.

Companies receive discounted rates in exchange for agreeing to reduce power use when supplies are tight, but in the last year companies have been asked to cut power dozens of times or face big fines.

The new program limits power interruptions to no more than six hours a day, four days a week and 40 hours a month. Other programs will allow customers--even groups of residential customers--to be paid for reducing power use, and expand a Southern California Edison operation that automatically turns off some air-conditioners.

The commission heard more than three dozen speakers Tuesday during its public comment period, and several protesters were ejected for disruptions.

Protesters challenged the commission to attend a community meeting at a San Francisco school on April 18. Commissioner Brown agreed, saying, “I hope you treat me as courteously as we tried to treat you.”

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Times staff writers Dan Morain and Carl Ingram in Sacramento contributed to this story.