PG&E: CA DWR Miscalculates by $3.1 Billion

Chapter 11-mired Pacific Gas and Electric Co. last week accused the California Department of Water Resources (DWR), the state's wholesale bulk electricity buyer, of overestimating its forecast of spot power purchase costs through next year by $3.1 billion, including overestimating the price of natural gas used to generate the power supplies.

The PG&E utility and Southern California Edison Co. once again reiterated their strong criticism of DWR's filings with the California Public Utilities Commission that the regulators will use to determine how much of the private-sector utilities' retail power rates will be used to pay back the state for its past and future electricity buying.

"Based on the limited information provided by DWR, we believe DWR has substantially overestimated the forecast cost of spot power purchases, and substantially overestimated the forecast cost of natural gas," the PG&E utility said in a prepared statement. "These overestimates combine to make DWR's 2001-02 revenue requirement more than $3.1 billion higher than it would be if estimates which reflect the current market realities, rather than financial or political considerations, were used.

"More than $1 billion of this apparent 'padding' of the revenue requirement has been assigned to PG&E's customers; and the other two utilities' customers are assigned the remaining $2 billion."

Like PG&E's utility, Edison contends the DWR filing leaves them in the dark as to how the state agency's revenue requirements have been determined and that the agency should be subject to the same cost-of-service ratemaking principles as the traditional investor-owned utilities are.

"Given the importance of the (CPUC's) decision to DWR's recovery of its revenue requirement and the issuance of the state's bonds, the (CPUC) should not leave unanswered which rules apply to DWR's conduct in this proceeding," Edison wrote in its filing with the CPUC late Tuesday. "DWR's financial model is critical to understanding how it determined its revenue requirement. Yet DWR has not provided any party access to its financial model. If DWR does not provide access, the (CPUC) will essentially be asked to adopt the output of a 'black box' that no party has had an opportunity to review."

The utilities continued to call for a public hearing in which DWR's basis for its stated revenue needs would be given more detailed scrutiny. PG&E's utility said DWR has refused its request that the agency conduct a public hearing on the issue. Edison urged the CPUC to "withhold approval of DWR's revenue requirement" until it holds such a hearing.

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