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CA Utilities Struggle to Meet New Affiliate Rules

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 holding companies.

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&ampE 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&ampE 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&ampE 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

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