Ratepayer Watchdog Blasts Deal with SDG&E

As state legislators frantically try to come up with a legislative alternative to the governor's deal with Southern California Edison Co., the consumer watchdog part of the California Public Utilities Commission last week blasted a more recent agreement, or memorandum of understanding (MOU), crafted with Sempra Energy's San Diego Gas and Electric Co.

"The state's proposed purchase of SDG&E's transmission assets gives the ORA (Office of Ratepayer Advocates) the most heartburn," a CPUC announcement of the unit's preliminary review stated. "For one, ORA believes that taxpayer money might be better directed toward building or acquiring new generation. The California energy crisis was precipitated by problems in the wholesale generation market, not in the transmission grid."

Generally, the ORA initial assessment is highly critical of the deal as being "excessive."

Regina Birdsell, ORA director at the CPUC, said that while the SDG&E deal addresses several areas of interest to both utility ratepayers and taxpayers, "the valuation assigned to most, if not all, provisions is clearly excessive." Birdsell did acknowledge that some of the so-called MOU may have merit and needed to be explored further. She said she hoped there would be an opportunity to debate both the pluses and minuses of the proposal in future CPUC hearings.

ORA questions the 2.3-times-book-value price for the transmission assets, speculating that the price could negate any benefits for the state. It also questions how the proceeds would be divided among SDG&E's ratepayers and shareholders, and what the impact on ratepayers would be if the state ever re-sells the assets to private-sector owners.

"The state has not articulated the benefits of acquiring SDG&E's transmission assets, particularly if the other provisions of the MOU can, in fact, adequately and fairly address SDG&E's cash bind," Birdsell said. The other areas of the MOU for which ORA raises questions are:

  • Creating a risk-free San Onofre Nuclear Generation Station Regulatory Asset with an inflated valuation ($146 million vs.$105 million);
  • Assigning utility-retained generation only to small core customers because over the long-term it may tie them to over-market priced supplies;
  • The value to the state of buying 24 square miles of land offered by SDG&E in two inland Southern California counties (Riverside and Imperial) for $35 million; and
  • All but an estimated $58 million of SDG&E's under-collections for wholesale power costs would be absorbed without having to sell transmission assets, so why is the transmission sale necessary?

ORA makes clear it considers the deal too good for Sempra shareholders and not good enough for SDG&E utility ratepayers. For example, all of the gain on sale from selling the transmission assets to the state would go to Sempra shareholders.

As with the Edison deal, SDG&E's MOU also calls for an agreement between the utility and DWR, a wiping out of the under-collections for wholesale power costs, SDG&E's retained generation being obligated to sell to the state for 10 years at cost-based rates, and the right for the state to get some lands for longer term environmental protection.

In addition, the CPUC must take three separate actions: (1) approve a settlement between ORA and SDG&E on outstanding disputed issues; (2) approve a settlement with SDG&E over how much of the under-collections it writes off due to profits from power sales at market-based rates; and (3) approve several rate mechanisms that allow the under-collections to be reduced substantially with pending refund monies.

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