PUC May Have Broken Law in Edison Rescue
A federal appeals court said Monday that the California Public Utilities Commission may have broken state laws when it hammered out an agreement in secret last October with Southern California Edison that allowed the utility to begin paying the huge electricity debts it ran up during the energy crisis.
The U.S. 9th Circuit Court of Appeals asked the California Supreme Court to rule on three potential violations of state law by the PUC in crafting a rescue plan for Edison. That plan allows Edison to keep electricity rates at current high levels until the utility’s power debts are paid.
If the state Supreme Court agrees that the PUC violated these laws, including open-meeting requirements and portions of the landmark law that deregulated the state’s investor-owned utilities, then the bailout agreement would be void, said Judge Sidney R. Thomas, writing for the three-judge panel.
But both sides in the legal battle claimed victory Monday.
Edison and the PUC pointed to the court’s rejection of challenges to the settlement under federal law.
Consumer advocates, however, predicted challenges to the deal would be upheld under state law, leading to lower rates and consumer refunds.
Analysts expressed concern about the uncertainty caused by the court opinion, but noted that Edison, a unit of Edison International, is collecting more than enough from customer rates to pay its bills.
“These are very serious questions,” said Roger Berliner, an energy lawyer who represents Los Angeles County before state and federal utility regulators. The appeals court panel “made it very clear that they think the settlement violates state law in fundamental ways.”
The appeals court panel cited three laws the PUC may have broken:
* By reaching an agreement in secret, the PUC may have violated a state law that requires the PUC to meet in public when it discusses changes in rates. The PUC has said it did not violate that law because it was discussing the settlement of litigation, which is allowed in closed session.
* By raising rates and giving Edison until 2005 to continue to collect its old electricity costs, the PUC may have violated the state’s deregulation law, AB 1890. That law froze rates and allowed utilities until March 31, 2002, to collect old electricity-related debts. Edison and the PUC contend that these costs are not covered by that law.
* By allowing Edison to continue to charge the 4-cent rate increase the PUC approved last year for state-related electricity purchases, the PUC may have violated state law that requires that hearings be held when rates are changed. The PUC said it has not broken this law because it did not change rates, it merely allowed existing rates to continue.
The PUC said even if the state Supreme Court rules it violated state laws, federal law trumps state law.
That point is crucial, because the Edison rescue was crafted as a settlement of a federal lawsuit. Rosemead-based Edison filed the lawsuit against the PUC in 2000, contending that state regulators are required by federal law to allow the utility to recover costs it incurred buying power at federally approved market rates.
A state-mandated rate freeze instituted when deregulation began in 1998 prohibited Edison from passing high wholesale costs to customers when market prices began soaring in May 2000.
The appeals court panel said federal law prohibits state officials from entering into agreements that violate state law. The judges did not consider the question at the heart of the lawsuit--whether federal law guarantees Edison the right to recover wholesale costs.
Trading in Edison stock was halted before the court opinion was released and never resumed Monday. It had fallen 24 cents to $10.50 a share in early trading on the New York Stock Exchange.
Edison and PG&E; Corp.’s Pacific Gas & Electric Co. plunged into technical insolvency in late 2000 because of their electricity debts. Pacific Gas & Electric filed for bankruptcy protection in April 2001.
Edison executives said they are weighing their legal strategy but expect to prevail should the state Supreme Court decide to take the case. At stake is $3.6 billion of the more than $6 billion in electricity and other debts Edison accumulated during the crisis.
Edison International Chief Executive John E. Bryson was reluctant to speculate what would happen if the agreement were voided, but added that some kind of new settlement would have to be reached with the state. Edison and PG&E; are set to begin buying power again Jan. 1.
“We are healthy today....We are solvent,” Bryson said in a conference call with analysts and investors. “The state doesn’t want us to get back into financial trouble and we don’t either.”
Consumer advocates said a win would mean lower rates for customers.
“The federal court killed the settlement and sent it to the California Supreme Court for burial,” said Nettie Hoge, executive director of the Utility Reform Network, or TURN, the San Francisco consumer advocacy group that challenged the Edison rescue in court.
Hoge said the consumer group has no interest in seeing Edison in Bankruptcy Court, but thinks rates could be reduced without hurting the utility by slightly reducing the return to investors over several years.
“There is the prospect of bankruptcy theoretically, but it doesn’t necessarily bankrupt them because the state could act relatively quickly” and propose another solution, said Christopher Ellinghaus, a utility analyst with Williams Capital in New York.
