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CA Legislator Urges Rejection of Edison Hike

CA Legislator Urges Rejection of Edison Hike

California state Sen. Steve Peace last week asked state energy regulators to reject utility attempts to recover through retail rates the under-collections from the continuing wholesale power price spikes and instead get the funds from generators and marketers who are charging the market-based prices.

In a strongly worded, four-page letter, Peace asked Loretta Lynch, president of the California Public Utilities Commission, to "vigorously contest any legal attempts to force" recovery of the charges in utility rates and instead "order utilities to exhaust their legal remedies to obtain refunds from all parties who were the beneficiaries of the proceeds of the unlawful wholesale charges" incurred by the investor-owned utilities.

California's electric stakeholders are predicting a special session of the state legislature early next year to smooth the continuing rough edges of the state's 1996 electric industry restructuring law that is at the center of the debate surrounding the uncollected wholesale charges. A filing was made last Friday by Southern California Edison Co. to the CPUC to increase retail rates 9.9% and end the four-year-old rate freeze mandated in the '96 power law.

Technically, Edison officials maintain that its rate freeze ended in August when it posted valuations of its remaining generation assets in appropriate balancing accounts established by the CPUC. Nevertheless, the five-member CPUC has continued to refuse to end the freeze at a time when wholesale power prices continue to stay more than twice above their historic levels.

With retail rates frozen well below what wholesale power rates have been averaging for the past six months in California, Edison and the other major utilities have accumulated more than $5 billion in uncollected charges. Edison's filing with the CPUC last Thursday (Nov. 16) proposes to collect the charges over a five-year period, beginning Jan. 1, 2001, noting in its filing and media briefing that "the urgency of the situation combined with the refund flexibility justify such action."

In addition to asking for an end to the rate freeze, Edison wants a 9.9% increase as a "rate stabilization" mechanism and provision for future increases if wholesale power prices continue to exceed the utility's retail rate levels, which it proposed to go back to pre-freeze 1996 levels of about 10.5 cents/kwh. Edison officials said they don't expect the high wholesale prices to continue once the federal and state remediation measures now being formulated are put in place, including possible state legislative action next year.

Both the utilities and Sen. Peace are relying on legal interpretations of state and federal laws. Peace told Lynch that usual "filed-rate pass through doctrine" does not apply in California's case because the charges in question were not based on "FERC-approved contracts" but rather a market-based mechanism approved by the federal regulators.

"When a 'market-based' tariff proves to be vulnerable to the exercise of market power and thus fails to produce the just and reasonable rates intended by FERC, those rates are unlawful and thus not subject to the field rate doctrine," Peace said in his letter to the CPUC.

Edison's senior vice president for public affairs, Bob Foster, said last week that ending California's rate freeze and stabilizing rates does not require additional state legislative action, noting his utility hopes the matter will be dealt with administratively by the CPUC under the existing laws.

"Edison's proposed rate increase and stable pricing structure compares favorably to the unacceptable alternative of exposing customers to market-based prices and volatility," Foster said. "At current prices, customers would have been exposed to a 45% hike in residential electricity rates."

Edison officials said the utility informed the CPUC that it would "continue to provide customers with a buffer against wholesale price spikes" and that no additional rate increases would be needed to recover the under-collections.

Edison also acknowledged that there are larger, longer-term issues concerning the utility's future role in electric industry restructuring, and those issues should be addressed in a longer-term second phase to its rate request. Issues such as Edison's role as a utility "default provider" for bundled customers and its ownership of future generation need to be reviewed over a longer time period, for which the under-collection issue cannot wait, according to Edison's CPUC filing.

Richard Nemec, Los Angeles

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