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CPUC Okays Look at Holding Company/Utility Relationships

Officially following through on a commitment made by its head regulator at a public meeting earlier this month, the California Public Utilities Commission Thursday officially opened a proceeding ("order instituting rulemaking," or OIR) to examine the current state of relations between the state's major private-sector energy utilities and their individual holding companies.

The CPUC chief counsel promised the proceeding would be limited and focused, beginning in the first quarter next year, following the submittal by the end of next month of five-year (2006-10) capital expenditure plans by each of the utilities and their parent companies.

In separate action, the CPUC also approved a statewide settlement among the independent CPUC consumer unit, the Office of Ratepayer Advocates (ORA) and the state's four major private-sector energy utilities cumulatively totaling about $271 million of incentive-based ratemaking energy efficiency rewards to the utilities' shareholders. The settlements cover a period of more than 10 years, and the CPUC estimated that the efficiency programs created $670 million in total net resource benefits to utility ratepayers.

With the recent repeal of the federal Public Utility Holding Company Act (PUHCA) in the 2005 Energy Policy Act, the CPUC said it has two goals for its examination of the utility holding companies: (1) making sure utilities meet their "public service obligations" at the lowest possible cost, and (2) ensuring that they "do not favor or otherwise engage in preferential treatment of their affiliates."

The CPUC said it will review current energy infrastructure investments of the parent holding companies and the capital budgets of the utilities and their parent holding companies "to better understand the amount of capital that is expected to be allocated to either the utilities or an affiliate for investment in energy infrastructure that will meet any part of California's need for reliable supplies of energy."

It was noted in taking the formal action that CPUC President Michael Peevey previewed at a meeting in Los Angeles Oct. 6 that current parent holding companies were for the most part formed more than 10 years ago, and they have "significant investments in energy infrastructure," including distribution and transmission for both electricity and natural gas, and including trading companies and marketing units -- domestically and overseas.

With the repeal PUHCA, the CPUC reasoned that California utility holding companies may try to expand their unregulated holdings, and in that event, the regulatory body wants to "ensure that California's energy utilities retain sufficient capital and the ability to access such capital." If the CPUC finds there is inadequate capital or access to it, the regulators may put additional rules and regulations in effect to "address the potential conflicts between ratepayer interests and the interests of the parent holding companies and affiliates."

In regard to the separate action on the decade's old incentives for energy-saving programs that the state's utility shareholders earned, Commissioner Susan Kennedy said the authorized earnings via the ORA settlement "are much less than the savings that ratepayers have already received by deferring or avoiding more supply-side investments rather than efficiency."

As part of the settlements, the utilities have agreed to consolidate the rewards with other rate proceedings in order to "minimize or completely eliminate the need for additional rate changes," Kennedy said.

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