Regulator OKs Deal on Bonds for Buying Power

SAN FRANCISCO -- After months of delays and debate, the state’s chief utility regulator approved a key agreement Thursday that helps pave the way for California’s sale of bonds to repay billions of dollars spent to purchase power during the energy crisis.

The Public Utilities Commission reached an accord with the Department of Water Resources, which has been buying electricity for the customers of financially troubled utilities for the past year.

The agreement is designed to assure Wall Street that the water resources agency will have a guaranteed revenue stream to repay up to $11.1 billion in bonds the state plans to sell later this fiscal year.

The commission also approved the department’s request that utility customers pay $9 billion--or roughly half of the agency’s projected power costs through December.

The allocation among the customers of Southern California Edison and Pacific Gas & Electric is slightly lower than what they have been paying since the record rate increases approved last year by the commission.

For example, the department’s charges for power supplied to Southern California Edison customers will decline from 10.28 cents per kilowatt-hour to 9.74 cents. For PG&E; customers, who received almost half of the state’s power purchases, the price will drop from 9.47 cents to 9.29 cents. For San Diego Gas & Electric, the price will fall from 9.02 cents to 7.29 cents.

Commission officials say that no rate increase appears necessary to meet the department’s costs.

The actions taken by the commission are key to California’s hopes for one of the biggest municipal bond sales in history. The state’s Wall Street advisors say these steps and others are necessary to assure the state good interest rates.

After legislation authorized the department to get into the power-buying business, the state has borrowed $6.1 billion from the general fund and $4.3 billion from private lenders, and it has entered into $43 billion in long-term power contracts.

The state treasurer and the governor have been urging the commission to take action on the rate agreement for months. But the commission voted 4 to 1 in October to reject the deal, largely because it required the commission to rubber-stamp the department’s power costs and pass them on to ratepayers.

Pressure for an agreement has intensified as the state’s financial problems have deepened with the recession and economic impacts of Sept. 11 terrorist attacks.

Commission President Loretta Lynch, who has been negotiating with the department, recently reached an agreement that she says contains a number of improvements over the rejected one, including provisions requiring the department to share more information on its costs with the commission.

“This agreement is better,” she said, “in that it requires DWR to try to renegotiate” controversial and costly long-term contracts.

Gov. Gray Davis, who has criticized the commission’s past inaction, issued a statement praising the agreement. “This is good news for California, because rates will not rise.”

Department spokesman Oscar Hidalgo said, “We’re still not out of the woods yet, but this is a big step in the direction of making the general fund whole again.”

State Treasurer Phil Angelides said several steps must be taken before the bonds can be sold, including addressing any legal challenges by utilities, consumer groups or others.

Consumer groups immediately criticized the agreement.

“The PUC told ratepayers, ‘We quit,’” said Doug Heller, a consumer advocate for the Foundation for Taxpayer and Consumer Rights in Santa Monica. “In bowing to Gov. Davis, the PUC has shirked its constitutional obligations to be the independent regulator of consumer rights.”

Lynch scoffed at such criticisms, saying state law requires the commission to cover the department’s cost of buying power for customers and that the panel retains authority to set and define the rates to meet those costs.

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Reiterman reported from San Francisco, Vogel from Sacramento.