CA Regulators Issue Rate Deal with Power-Buying Agency

In a critical step on the road to financial solvency for the state and two private-sector utilities, the California Public Utilities Commission last Wednesday issued its draft rate agreement with the state water resources department (DWR), which since January has been buying billions of dollars of wholesale electricity for the state. Comments on the draft are due by Aug. 1, and the regulators expect to act on the final document at their regular business meeting Aug. 23.

In the topsy-turvy energy world being created in California, DWR has what no regulated utility under the CPUC jurisdiction historically has been able to get--an ironclad assurance of coverage for all of its costs related to the buying of wholesale power supplies.

As outlined by CPUC President Loretta Lynch, a portion of the three major investor-owned utilities' rates will cover all of DWR's costs related to the state's upcoming $13 billion revenue bond sale, power purchase costs and administrative costs. Emergency state legislation (AB 1X) passed earlier this year giving DWR authority to buy wholesale electricity also guaranteed the department a mechanism for recovering all of those costs, and, in effect, repaying the state general funds billions of dollars.

If the five-member CPUC approves the DWR agreement, it becomes "irrevocable," Lynch said.

Among the unique provisions for the CPUC, which was established in California's constitution to regulate private sector energy, telecommunications and transportation companies, along with public-sector transportation systems, there is a "rate covenant" spelling out how the regulators will keep their promise to set rates that cover DWR's full revenue requirements.

Other provisions allow the DWR or a still-unspecified "trustee" to enforce the agreement, meaning either or both can take legal action against the CPUC "to compel it to meet its obligations." (In contrast, two private sector utilities earlier failed in federal court to compel the CPUC to increase rates to cover their full wholesale power costs under the so-called federal "filed rate doctrine.")

Compared with the traditional private-sector utility companies, DWR has unprecedented latitude in deciding what changes it makes in the ongoing power purchasing programs, according to state regulatory observers and analysts.

After comments are received, a CPUC administrative law judge will issue a proposed decision. It is that proposal that the full commission is expected to consider when it meets Aug. 23.

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