Facing the prospect of a fiscal crisis flowing from its electricity woes, a majority of the five-member California Public Utilities Commission last week rejected the governor’s proposal for a rate agreement with the state power-buying agency, the Department of Water Resources (DWR). The rate agreement had been billed as being essential to a future state bond sale backed by retail utility rates. The vote was 4-1, leaving a major question mark of how the state will pay for its power-buying spree.

While attributing the root causes of the state electricity price/supply crisis of 2000-2001 to ill-advised market-based federal regulatory policies and the avarice of merchant power suppliers, CPUC President Loretta Lynch, as expected, joined the majority, agreeing the pact would accede too much power to DWR, and a better alternative for the bond sale is found in a state legislative proposal (SB 18XX).

A host of consumer, environmental and renewable energy groups appeared at the CPUC business meeting in San Francisco, urging rejection of the rate agreement. All argued that the state should not lock itself into all of the 53 long-term contracts signed by DWR with current state power authority director David Freeman serving as the chief negotiator.

Lynch said she does not think that the state treasurer, Phil Angelides, who urged the governor to push the DWR rate agreement, understands the long delays from legal appeals that will be caused if the rate agreement were passed. The alternative legislative measure, SB 18XX would establish a process where the bond sale could go forward despite legal challenges to the rate agreement, she said.

“All of our bond advisers have advised this commission that the SB 18XX bonds will have a higher yield, and thus, will be less costly to the ratepayers,” Lynch said. “It is a clear choice, and will enable to general fund to be repaid quicker.”

Carrying the governor’s case and perhaps previewing an eventual change of leadership at the CPUC, Commissioner Geoffrey Brown, a lawyer, argued that there were viable alternatives to a rate agreement with DWR. He said the legislative option (SB 18XX) will be vetoed by the governor, and that the state officials charged with selling the public sector revenue bonds argue nothing else will work for various legal and contractual reasons.

Other commissioners argued that the proposed DWR rate agreement is “unacceptable” and probably “unconstitutional.” It offers the state power-buying agency a “blank check” and too much power, making it both “judge and jury.”

“If DWR doesn’t make prudent and reasonable prices, then the agency must absorb the added cost,” said Commissioner Henry Duque, the senior member of the five-member panel who said he could not sign his name to this agreement.

Former CPUC president Richard Bilas said he could not support the proposal “in good conscience.” “DWR should not be set up as a power broker passing on costs to ratepayers with no oversight.”

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