Over the lone objections of the former head state regulator, Pacific Gas and Electric Co. Thursday received a $7.6 million conditioned reward from state regulators for its natural gas buying in 2001-02, including the period of extreme wholesale energy price spikes. The reward for keeping costs below a formula tied to gas price indices was less than half of the almost $17 million requested by the utility and was subject to future forfeiture pending the outcome of pending California wholesale border price investigations.

The original reward request was cut by $9.1 million due to what the California Public Utilities Commission called the “utility’s revision and disclosure of additional costs” following its original filing.

“The shareholder reward is subject to future revision for forfeiture depending upon the outcome of the CPUC’s investigation into the causes of high California border gas prices in 2000-2001,” said the order approved on a 4-1 vote by the five-member regulatory commission. And, it added, the outcome of the ongoing Federal Energy Regulatory Commission probe could also impact the award. “Additionally, PG&E may revise the shareholder reward upon the resolution of certain financial and physical settlement costs currently in dispute.”

Commissioner Loretta Lynch, former president of the CPUC (2000-2002), said she opposed giving any reward when the commission has an open investigation of border price spikes covering the period of the gas-purchasing award. “I think it is premature to award any shareholder rewards for gas procurement until the commission has a chance to fully examine the causes of California’s high natural gas prices during the period,” Lynch said. “And in this case, (the utility’s) costs for the 2000-2001 period are not even final, since PG&E is still in dispute with a number of its suppliers for the costs incurred over the period.”

Susan Kennedy, the newest commissioner, said she was not “enamored” with giving the rewards right now, but was concerned about the regulatory commission living up to the rules it establishes in incentive ratemaking programs. “When we put a rule in place, the companies have an understanding that we will live up to our end of the responsibility,” said Kennedy, adding that if manipulation of the gas prices is found to have been the case later that the reward can be modified by the regulators.

The CPUC adopted the incentive ratemaking mechanism for natural gas purchasing eight years ago for the PG&E utility. Under its provisions, if gas costs fall outside a pre-set “tolerance band,” there is a 50-50 sharing of savings between the utility customers and the shareholders.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.