PUC to Hand Utility Customers $4.65-Billion Tab

SAN FRANCISCO -- State regulators on Tuesday obligated California utility customers to pay a $4.65-billion tab next year for electricity contracts purchased by the Department of Water Resources, but they urged DWR to reduce the cost by nearly $1 billion.

In virtually rubber-stamping DWR’s revenue request, the Public Utilities Commission abided by an agreement to help guarantee that the state’s $36 billion in long-term power contracts and $11.2 billion in energy bond obligations are paid.

But the panel voted 3-2 to remove $29 million that DWR requested for programs to reduce energy demand, on grounds that these are outside the purview of the water agency.

And PUC President Loretta Lynch said the department’s request should be reduced even more because it contains almost $800 million in financial reserves and $170 million for electricity reserves. The commission says the state’s three investor-owned electric utilities will be responsible for those reserves next year.

“Without an immediate update [on the revenue requirement], ratepayers may be charged over $1 billion more than necessary in 2003 and [that] could have a detrimental effect on the economy,” Lynch said.

The action set up yet another clash between two state agencies over the incremental steps designed to remove the state from the power-buying business and to pay for pacts signed during the energy crisis of 2000-01.

“We have no problem re-looking at the revenue requirement,” said DWR spokesman Oscar Hidalgo. “It is a moving target.”

However, he said the department disagrees with the PUC’s decision to cut $29 million for a program that is geared to reduce demand by big utility customers when power is in short supply.

Hidalgo said it is “premature” to cut money for maintaining electrical reserves because the PUC has not yet finalized the transfer of those activities back to utilities -- and the utilities have not resumed those duties.

And he said the large financial reserves were partly necessary to help secure a good rate for the state’s recent bond sale.

The PUC is scheduled to vote Thursday on orders that would require the utilities to fully resume purchasing power Jan. 1 and provide billing mechanisms to pay for the energy bonds.

In adopting DWR’s revenue requirement for 2003, the PUC allocated $1.97 billion of the state’s cost of power contracts to Pacific Gas & Electric Co. customers, $1.88 billion to Southern California Edison customers and $643 million to San Diego Gas & Electric Co. customers.

The PUC said it adopted an allocation method that divides the total cost of DWR’s contracts among utilities, based on the quantity of energy supplied to each utility. The utilities proposed allocation methods that reduced the costs borne by their own customers.

The water resources department began buying power in early 2001 after wholesale energy prices rose and Edison and PG&E; fell into financial trouble.

When utilities purchase power, the PUC normally reviews the reasonableness of the purchases.

However, the PUC surrendered that role in the case of DWR’s power purchases to help assure Wall Street that there would be an adequate revenue stream to repay energy bonds the state issued to replenish the treasury for energy costs.

The PUC ordered the utilities to resume responsibility on Jan. 1 for purchasing any power needed to make up the difference between customer demand and the electricity obtained from state contracts and the utilities’ own generation facilities.