http://www.contracostatimes.com/news/california/stories/puc_20010719.htm Published Thursday, July 19, 2001

Plan gives water agency power to increase rates

State's ratepayers would not be protected under the PUC agenda; officials could call for price hikes when needed

By Mike Taugher TIMES STAFF WRITER

--------------------------------------------------------------------------------

The state would have unfettered access to proceeds from electricity bills and lock itself into the business of buying electricity for 15 years or more under a proposal released Wednesday by the state's top utility regulator.

The draft rate agreement between the Public Utilities Commission and the Department of Water Resources, which must be finalized before bonds can be sold to pay for the state's electricity purchases, will give the DWR the unconstrained ability to raise rates whenever it wants.

No longer would ratepayers in the state's three biggest utilities be protected by the rate-setting authority that now rests with the PUC. Instead, state bureaucrats will be able to simply issue new calls for money.

State officials say it is unlikely that a new rate increase is needed now. Before that issue is resolved, however, the DWR must submit its anticipated revenue requirements and the PUC must decide how to compensate utilities for the electricity they generate from facilities they still own.

The proposal released Wednesday by PUC President Loretta Lynch amounts to a legally binding, irrevocable guarantee of funding to the state water agency, which took over electricity purchasing from the financially beleaguered utilities in January.

It allows state officials to raise electricity rates in as little as 30 days and, by further solidifying a central role for state government in the electricity industry, takes California even further away from the pioneering path of electrical restructuring it began in 1996.

Free-market advocates were troubled and consumer advocates were angered by the proposal.

"This proposal, driven by energy companies and Wall Street investment firms, would strip the PUC of its regulatory authority," said Harvey Rosenfield, a fierce critic of deregulation and head of the Foundation for Taxpayer and Consumer Rights. "Instead, (DWR), a secretive agency of dubious competence controlled by the governor and completely unaccountable to the public, will be given the power to unilaterally order rate increases to cover not only its power purchases -- which have been revealed as inflated and often amateurish -- but also any other expenses, such as salaries, perks, etc."

State law already was forcing the PUC to pass the state's costs to electricity ratepayers, but the task of providing a guaranteed funding source for bondholders was complicated by DWR negotiators. They signed $43 billion in long-term electricity contracts that put generators ahead of bondholders in the line for ratepayers' payments, forcing the PUC to guarantee funding not just for the bonds, but also for the DWR purchase program.

The result: DWR gets a legally binding commitment that it will get whatever it says it needs from ratepayers for purchases, administration and debt service on a record-breaking $13.4 billion bond issue.

"It's true that the terms of the contracts are doing that," said Geoffrey Dryvynsyde, a PUC lawyer.

Had the contracts been written differently, the PUC could have offered a guarantee just on the bond payments, Dryvynsyde said.

And because the draft PUC agreement guarantees debt service will be paid by ratepayers, it ensures that the state will be in the power-buying business during the life of the bonds.

"There's no way DWR can exit the selling of electricity while the bonds are in existence," Dryvynsyde said.

State financial planning documents have anticipated the life of the bonds to be 15 years, but Dryvynsyde said there has been discussion that the bonds could last as long as 20 years.

Free-market proponents are troubled because the state would have an unreviewable right to whatever amount of money it says it needs.

PUC Commissioner Richard Bilas, a Republican who frequently votes against Lynch, said the commission should have deregulated retail electricity rates months ago, which he acknowledged would have driven electricity bills extremely high for a time.

Now, he said, the plan to allow the state to continue to buy electricity and set rates is "troubling," but might be the only alternative available.

"I don't know who's looking over the shoulder of DWR," he said.

By locking in the state as an electricity buyer and forfeiting the PUC's rate-setting authority to the state, California's electricity crisis has forced the state further toward a centralized electricity system, the exact opposite of the decentralized, free-market system that was envisioned by deregulation's supporters.

"We went back at least five years, if not 100 years, in terms of solving the problem," said Gary Ackerman of the Western Power Trading Forum, an industry trade group. "I think the best way for customers to get lower prices is to get competition at the retail level."

Bilas said that once the utilities' compensation for the power they generate is calculated, another rate increase is likely.

"DWR doesn't give a damn about (Pacific Gas & Electric) and (Southern California) Edison," Bilas said.

The PUC is accepting public comment on the proposed deal and expects to adopt an agreement with the DWR next month

-- Martin Thompson (mthom1927@aol.com), July 19, 2001