CPUC Nixes Anti-competitive Deal With Municipal

The California Public Utilities Commission has squashed a deal between Pacific Gas and Electric and a north-central valley municipal utility for being anticompetitive. A PG&ampE spokesperson said the large utility was both "surprised and disappointed" by the 3-2 negative vote, indicating his company would resume negotiations to work out a deal acceptable to the state regulators.

The PG&ampE utility had agreed to sell Modesto Irrigation District (MID) part of its electric distribution system serving 23,000 customers in four rural towns in Modesto County for $89.8 million, but the CPUC reacted negatively to three portions of the accompanying 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 territory would have no chance to benefit from electric distribution competition for at least five years because of the MID agreement.

PG&ampE utility customers who would become MID customers could no longer choose between MID and PG&ampE for electric distribution service. The same customers would have to wait until as late as 2002 to have their choice of power providers because MID, as a government-run utility, is not required by California's electric restructuring law to provide its customers with direct access if they want it.

Another part of the agreement would have required MID to pay PG&ampE an additional $54 million to cover the competition transition charges (CTC) the investor-owned utility would have recovered from the customers switching to the government utility. Also, up to half the savings PG&ampE realized from the deal would have to be refunded to its utility customers. However, the CPUC did not rule on these parts of the deal because of the rejection based on its anti-competitive aspects.

In recent years, MID has competed aggressively with PG&ampE for customers as one of the state's larger government-run electric operations. PG&ampE earlier sought state legislation and civil court actions to bar MID's efforts before the two utilities in 1996 began negotiating a settlement.

As a special district, MID holds a different status than municipal utilities run by charter cities. It has powers of condemnation and authority to acquire and operate electric plants as well as sell power to cities, public utility districts and individuals. MID currently serves 90,000 customers in central California. Richard Nemec, Los Angeles

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