CA Utilities Struggle to Meet New Affiliate Rules
California is learning the hard way that yet another early
offshoot of more competitive energy markets is the arcane world of
trying to police the activities between state-regulated utilities
and their unregulated affiliates operating in the gas and electric
markets. Nearing the end of its first year of dealing with this
issue, California is experiencing, at best, an uneasy peace between
state regulators and the state's three major investor-owned utility
The highest profile issue is the required disclaimer that
unregulated affiliates must use in promotional materials, including
business cards, when their affiliated utility's logo and/or name
are used. The application of the regulator-approved disclaimer
language is what has gotten some of the utilities in trouble. So
far, Pacific Gas and Electric Co. is appealing a $1.68 million fine
assessed for rules violations, newly affiliated Southern California
Gas Co. and San Diego Gas and Electric Co. are considering
appealing several specific rules, and Southern California Edison
Co. is awaiting further clarifications but has no present plans to
appeal. All three utilities are in the midst of auditing of their
first year of operations under the rules.
The CPUC still must establish final statewide rules on the
name/logo issue, the process for airing complaints and the monetary
fines/penalties that will be employed longer term.
In the wake of the PG&E penalty, which the California Public
Utilities Commission made clear was a signal the affiliate rules
are being taken seriously, a CPUC source indicated Sempra Energy's
operations also are being looked at for the possibility of alleged
misuse of the disclaimer rule related to a natural gas earthquake
valve product it offered earlier this year. Of more concern to
Sempra, however, are restrictions on its quest to acquire and
create a network of local distribution utility companies in other
states and its ability to share equipment and technical advice
among its utility and nonutility affiliates.
Sempra Energy Utility Ventures, the company overseeing
development of utilities outside of California, is treated as an
unregulated affiliate in California, meaning that the head of
Sempra's utilities, Warren Mitchell, cannot be an officer or board
member of the Utility Ventures' operations.
For the SoCalGas and SDG&E utility operations in California,
the new affiliate rules prohibit joint procurement of pipe and
related equipment with unregulated affiliates, and the sharing of
technical advice or recommendations on unregulated energy services.
Sempra's California utility operations are considering appealing
each of these prohibitions. In the meantime, SoCal and SDG&E
were ordered by the CPUC to resubmit their earlier compliance plans
by Dec. 5.
Each of the major CPUC-regulated, investor-owned California
utilities has created work units to do nothing but oversee the
respective companies' compliance with the affiliate rules, all of
which were established early in 1998 to help assure that
unregulated utility affiliates don't have access to utility
information that would give them an unfair advantage in the newly
emerging competitive energy markets in California.
"They're pretty stringent rules and we're operating in
compliance with them," said Bill Doebler, one of several managers
at SoCal Edison assigned full time on affiliate transaction rules
compliance. Each of the utilities have retained outside auditors to
help comply with the requirement for annual audits beginning in
'98. The audits are due to CPUC by May 1, 1999.
Doebler said Edison made some organizational changes based on
the affiliate rules early in the year. But since then, there has
been no impact on how the large utility has organized from the
affiliate rules standpoint.
Richard Nemec, Los Angeles