The California Public Utilities Commission has squashed a dealbetween Pacific Gas and Electric and a north-central valleymunicipal utility for being anticompetitive. A PG&ampE spokespersonsaid the large utility was both “surprised and disappointed” by the3-2 negative vote, indicating his company would resume negotiationsto work out a deal acceptable to the state regulators.

The PG&ampE utility had agreed to sell Modesto IrrigationDistrict (MID) part of its electric distribution system serving23,000 customers in four rural towns in Modesto County for $89.8million, but the CPUC reacted negatively to three portions of theaccompanying service area agreement that include a 25-year”no-compete” clause.

The three aspects in the deal that drew CPUC criticism are:

PG&ampE utility customers outside of MID’s expanded territorywould have no chance to benefit from electric distributioncompetition for at least five years because of the MID agreement.

PG&ampE utility customers who would become MID customers couldno longer choose between MID and PG&ampE for electric distributionservice. The same customers would have to wait until as late as2002 to have their choice of power providers because MID, as agovernment-run utility, is not required by California’s electricrestructuring law to provide its customers with direct access ifthey want it.

Another part of the agreement would have required MID to payPG&ampE an additional $54 million to cover the competitiontransition charges (CTC) the investor-owned utility would haverecovered from the customers switching to the government utility.Also, up to half the savings PG&ampE realized from the deal wouldhave to be refunded to its utility customers. However, the CPUC didnot rule on these parts of the deal because of the rejection basedon its anti-competitive aspects.

In recent years, MID has competed aggressively with PG&ampE forcustomers as one of the state’s larger government-run electricoperations. PG&ampE earlier sought state legislation and civilcourt actions to bar MID’s efforts before the two utilities in 1996began negotiating a settlement.

As a special district, MID holds a different status thanmunicipal utilities run by charter cities. It has powers ofcondemnation and authority to acquire and operate electric plantsas well as sell power to cities, public utility districts andindividuals. MID currently serves 90,000 customers in centralCalifornia. Richard Nemec, Los Angeles

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