California state Sen. Steve Peace last week asked state energyregulators to reject utility attempts to recover through retailrates the under-collections from the continuing wholesale powerprice spikes and instead get the funds from generators andmarketers who are charging the market-based prices.

In a strongly worded, four-page letter, Peace asked LorettaLynch, president of the California Public Utilities Commission, to”vigorously contest any legal attempts to force” recovery of thecharges in utility rates and instead “order utilities to exhausttheir legal remedies to obtain refunds from all parties who werethe beneficiaries of the proceeds of the unlawful wholesalecharges” incurred by the investor-owned utilities.

California’s electric stakeholders are predicting a specialsession of the state legislature early next year to smooth thecontinuing rough edges of the state’s 1996 electric industryrestructuring law that is at the center of the debate surroundingthe uncollected wholesale charges. A filing was made last Friday bySouthern California Edison Co. to the CPUC to increase retail rates9.9% and end the four-year-old rate freeze mandated in the ’96power law.

Technically, Edison officials maintain that its rate freezeended in August when it posted valuations of its remaininggeneration assets in appropriate balancing accounts established bythe CPUC. Nevertheless, the five-member CPUC has continued torefuse to end the freeze at a time when wholesale power pricescontinue to stay more than twice above their historic levels.

With retail rates frozen well below what wholesale power rateshave been averaging for the past six months in California, Edisonand the other major utilities have accumulated more than $5 billionin uncollected charges. Edison’s filing with the CPUC last Thursday(Nov. 16) proposes to collect the charges over a five-year period,beginning Jan. 1, 2001, noting in its filing and media briefingthat “the urgency of the situation combined with the refundflexibility justify such action.”

In addition to asking for an end to the rate freeze, Edisonwants a 9.9% increase as a “rate stabilization” mechanism andprovision for future increases if wholesale power prices continueto exceed the utility’s retail rate levels, which it proposed to goback to pre-freeze 1996 levels of about 10.5 cents/kwh. Edisonofficials said they don’t expect the high wholesale prices tocontinue once the federal and state remediation measures now beingformulated are put in place, including possible state legislativeaction next year.

Both the utilities and Sen. Peace are relying on legalinterpretations of state and federal laws. Peace told Lynch thatusual “filed-rate pass through doctrine” does not apply inCalifornia’s case because the charges in question were not based on”FERC-approved contracts” but rather a market-based mechanismapproved by the federal regulators.

“When a ‘market-based’ tariff proves to be vulnerable to theexercise of market power and thus fails to produce the just andreasonable rates intended by FERC, those rates are unlawful andthus not subject to the field rate doctrine,” Peace said in hisletter to the CPUC.

Edison’s senior vice president for public affairs, Bob Foster,said last week that ending California’s rate freeze and stabilizingrates does not require additional state legislative action, notinghis utility hopes the matter will be dealt with administratively bythe CPUC under the existing laws.

“Edison’s proposed rate increase and stable pricing structurecompares favorably to the unacceptable alternative of exposingcustomers to market-based prices and volatility,” Foster said. “Atcurrent prices, customers would have been exposed to a 45% hike inresidential electricity rates.”

Edison officials said the utility informed the CPUC that itwould “continue to provide customers with a buffer againstwholesale price spikes” and that no additional rate increases wouldbe needed to recover the under-collections.

Edison also acknowledged that there are larger, longer-termissues concerning the utility’s future role in electric industryrestructuring, and those issues should be addressed in alonger-term second phase to its rate request. Issues such asEdison’s role as a utility “default provider” for bundled customersand its ownership of future generation need to be reviewed over alonger time period, for which the under-collection issue cannotwait, according to Edison’s CPUC filing.

Richard Nemec, Los Angeles

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