Responding to state regulators, California’s two largestelectric utilities in separate filings last week proposed that thestate end the four-year-old rate freeze and permit them to buy moresupplies outside of the state-chartered wholesale spot power marketas a means of bringing down excessively high wholesale prices. Partof the means of bringing stability would include rate increases forthe utilities and price caps for merchant generators and marketersselling electricity in California.

As they have done at the federal level, both utilities repeatedthat “prompt action (by the California Public Utilities Commission)is essential” to stabilize the current troubled electricityrestructuring and develop longer-term solutions. CPUC action isexpected by the end of this year.

The essence of both filings will be reiterated by the utilitiesin an opening CPUC hearing in San Francisco that starts theregulators’ formal examination of the revenue under-collectionissue and related wholesale price spike issues.

Southern California Edison Co. and Pacific Gas and Electric Co.took the separate actions as part of the state regulators’examination of the utilities’ now-$5 billion under-collections ofwholesale power costs they have paid since June that greatlyexceeded the frozen rates they have collected from customers.

Edison proposed a four-point program, including a “modest rateincrease not to exceed 10%” beginning Jan.1, 2001. PG&E’sutility suggested transferring the under-collections to a newbalancing account, determining post-freeze rates and establishingrate stability for retail customers “that will soften thevolatility of market prices for wholesale power while allowing theutility to fully recover such costs over a reasonable period oftime.”

Both utilities directly countered proposals by a statewideutility consumer watchdog group, TURN, that monies collected aspart of the stranded cost recovery charges, which amount tobillions of dollars, be applied to the under-collections. Bothutilities also asked for a determination on the long-termdisposition of their remaining hydroelectric and nuclear generationassets.

The bottom line for both utilities is obtaining the CPUC’s okayto recover the wholesale power cost under-collections after therate freeze is lifted-authority that California’s other majorinvestor-owned utility, San Diego Gas and Electric Co., already hasas part of retail rate price cap law passed by the statelegislature in August specifically to give relief to SDG&E’scustomers.

Beyond that threshold, Edison and PG&E differ somewhat intheir filings.

“PG&E is willing to lend its financial resources to help itscustomers work through the time required to pay down theseunrecovered costs through a sensible rate stabilization program andpossibly through reasonable accounting mechanisms other than thoseproposed here,” the utility’s filing stated.

“However, PG&E is fundamentally opposed to any strategywhich conveniently changes the accounting and ground rules now andleaves the company holding the bag for these costs-whether they arecalled stranded transition costs or stranded non-transition costs.”

One of the four points in Edison’s filing, reiterated in atelephone press conference Thursday by CEO Stephen Frank, asks theCPUC to “confirm that utilities will be permitted to recover theirreasonable procurement costs incurred on behalf of customers.” (Theutilities want this assurance for the financial community, and intheir parent companies third quarter earnings reports this weekthere were no charges taken for the under-collections, contrary toSDG&E’s parent, Sempra Energy, which yesterday announced a $30million charge against utility earnings.)

Edison also stressed that the CPUC should complete its review ofseveral bilateral contract deals totaling 500 MW that it has beforethe regulators as part of a broader effort to “support marketreform.”

Richard Nemec, Los Angeles

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