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CA Utilities, Regulators Spar Over Revenue Under-Collection Issue

CA Utilities, Regulators Spar Over Revenue Under-Collection Issue

Consumers and utilities continued to butt heads in California last week over how to deal with almost $5 billion in uncollected revenues by the state's three major investor-owned utilities in the wake of this summer's wholesale electricity price spikes. With retail rates frozen the utilities have only collected a portion of the added cost of power since May. Consumer activists in San Francisco and San Diego last Tuesday launched a campaign against the utilities seeking pledges from political candidates throughout the state to promise to oppose the utilities' attempts to raise consumer rates to recover their costs.

On Friday, with only one day left in which to act, California Gov. Gray Davis was expected to drop a state legislative measure providing up to $150 million in taxpayer funds to help make whole San Diego Gas and Electric Co. over the next three years. Under state law, the governor had until the end of the day Saturday to sign or veto the measure; otherwise it dies through inaction.

A spokesperson in the governor's office noted Friday morning that Gov. Davis had not acted on the measure and there were no plans at the time for him to act, although he was still wading through several hundred unsigned bills --- after starting the week with 1,400 pieces of new legislation.

"It is time for our elected representatives to say 'no' to these companies," said Nettie Hoge, head of The Utility Reform Network (TURN), a San Francisco-based utility consumer watchdog group, who argues that California's three major utilities have collected more than $14 billion in revenues to cover their stranded costs, more than enough to offset the under-collections this summer. The utilities contend that is mixing apples and oranges.

In appealing to elected officials and prospective officeholders, TURN and several allied consumer groups are asking the officials to prevent any utility rate increase while the state-mandated retail rate freeze is still in effect and to oppose attempts to "end the rate freeze retroactively "and/or require consumers to pay anything more for electricity costs allegedly incurred" by the utilities.

In separate federal financial filings and upcoming state regulatory requests, California's two largest utilities, Pacific Gas and Electric Co. and Southern California Edison Co., are seeking assurances the monies will be eventually recoverable in utility rates and not left to be absorbed by shareholders. Both utilities are suggesting that under the state's 1996 electricity industry reform law they could now pay off their so-called stranded costs so a four-year-old retail rate freeze could be lifted. That would allow them to recover the full cost of power supplies in retail rates that would vary with the market as San Diego Gas and Electric Co. was doing prior to this summer's corrective legislation re-capping San Diego retail rates.

PG&E's utility filed with the Securities and Exchange Commission Sept. 13 saying that when crediting even conservatively agreed-upon values of its vast hydroelectric system to its remaining stranded costs, it could unfreeze rates and move on. SoCal Edison made a similar SEC filing Tuesday, contending that state regulators have wrongly "denied requests to allow recovery of transition revenue account undercollections after the end of the statutory rate freeze."

In its SEC filing, Edison said in a move to assure the financial community that "based on historical experience," the California Public Utilities Commission will support the utilities' cost recovery "as it supported cost recovery during the oil price shocks of the 1970s."

Both utilities are concerned that the CPUC is misinterpreting the 1996 state electricity law in assuming that the utilities can be left liable for uncollected power supply costs at the time rates are unfrozen. They argue that only the unrecovered stranded asset costs are at risk, saying they should be made whole on the prices they pay for wholesale power because it is a pass-through on which they make no profit. Both utilities said they would file with the CPUC next week to recover the uncollected electricity procurement costs, now said to total more than $4 billion for the two.

PG&E also has turned to the courts, most recently making a plea to the state supreme court attempting to get the authorization to charge customers the full cost of power once the freeze is lifted and to apply excess stranded cost recovery dollars to the uncollected power supply costs. Edison said it might make similar court filings.

In addition to upcoming CPUC filings and past ones giving them more borrowing authority to pay off the undercollections, the two utilities were able to get a joint state legislative resolution (AJR 77) passed in the waning hours of the legislature last month, and prompted the undercollection issue to be added earlier this month to the ongoing CPUC investigation of this summer's price spikes.

"The joint resolution requires the CPUC to review the impact of the current electricity crisis on consumers and California investor-owned utilities with emphasis on options for correcting the electricity market, methods to eliminate price volatility for consumers, and methods for cost recovery and cost allocation," Edison said in its SEC filing this week.

Richard Nemec, Los Angeles

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