PUC Orders Utilities to Buy Power Again

SAN FRANCISCO -- Over the objections of investor-owned utilities, the California Public Utilities Commission on Thursday took what officials called the final procedural step to get the state out of the power-buying business by New Year’s Day.

“The utilities will be back in business,” PUC President Loretta M. Lynch declared as the commission unanimously approved a decision requiring Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric to resume buying power next year.

The commission also imposed a surcharge on utility customers to cover the cost over the next two decades of a record $12-billion bond sale to finance the state’s past and future power tab. Officials said the surcharge, about $2.50 a month for the average customer, would not result in a rate increase, but could delay any future rate reduction by a couple of weeks.

The actions were the latest in a series of tortuous maneuvers the PUC has taken to shape the future delivery of electricity to millions of Californians and help replenish the state treasury, which was drained of billions of dollars after financially ailing utilities stopped buying power during the 2000-01 energy crisis.

Thursday’s actions did not come without resistance.

Edison and PG&E; have said they cannot resume full procurement of electricity without Wall Street ratings that would allow them to effectively buy power. And although SDG&E; has an investment-grade rating, the company argued that it should not be required to resume procurement until at least one of the other utilities does so too.

Casting aside those arguments, the commission said Edison and PG&E; are in a good position to conduct business, with strong cash flow and earnings, plus hundreds of millions of dollars in cash on hand. Edison reported $1.1 billion in cash on hand as of Aug. 31, after using $3 billion to pay creditors. The PUC said PG&E;, which filed for Chapter 11 protection from creditors in April 2001, had almost $4 billion at the end of August.

In addition, the commission said 90% of the energy needs of customers already is covered by the utilities’ power generation, their existing contracts and long-term pacts entered by the state Department of Water Resources after it started buying power in January 2001.

The commission recently gave the utilities permission to use more of the state’s credit, interest free, to cover their projected procurement needs for the next five years.

PG&E; spokesman John Nelson said there are serious obstacles to resuming power procurement, because the utility will need either an investment-grade rating or adequate collateral. “Being in bankruptcy, all of our cash on hand is pledged to pay off creditors,” he said. “Without Bankruptcy Court approval, you can’t start dipping into cash on hand to start purchasing power.”

An Edison spokesman said the utility would have no immediate comment until it had reviewed the PUC’s decisions.

The PUC voted 3 to 2 to establish a surcharge that would pay for the energy bonds and interest, which will amount to more than $18 billion. The surcharge will be about a half-cent per kilowatt hour.

The decision exempts low-income customers and those with special medical conditions, as well as customers of SDG&E; who consume less than 130% of a baseline amount. Officials say they are exempting SDG&E; to avoid a rate increase there.

Lynch and Commissioner Carl Wood voted against the surcharge decision after Lynch argued that it could jeopardize the state’s bond because it would invite litigation. She said it conflicts with Assembly Bill 1x because it imposes a surcharge on usage under 130% of baseline.

“We should exempt those baseline customers,” she said.

Commissioner Jeff Brown, who sponsored the alternative measure, said he was trying to spread the burden to as many ratepayers as possible.

Nelson of PG&E; said he is concerned that the decision may be unfair to PG&E; customers. “Everyone who uses energy ought to pay their fair share.”

Nettie Hoge, executive director of the Utility Reform Network, said the surcharge will appear on utility bills for two decades and is legally questionable. “This will be paid by people who were not even here during the energy crisis,” she said.