CPUC Grapples with Utilities? State Contract Costs

Investor-owned utilities are at loggerheads over California Public Utilities Commission plans for establishing a permanent way to slice up costs of the Department of Water Resources power contracts. San Diego Gas & Electric, which says two of the three versions of the plans would shift close to a billion dollars in costs to its ratepayers, is pitted against Pacific Gas & Electric and Southern California Edison. The latter two want SDG&E to shoulder more of the cost burden. A third proposal, by CPUC president Mike Peevey, adopts DWR?s revised revenue requirement for 2004 but postpones decisions on a permanent allocation method. Under this version, the water department would collect $4.32 billion for power costs instead of $4.52 billion. To date, the commission has spread the financial pain for these expensive deals, signed during the height of the energy crisis, on a pro-rata basis?in proportion to the quantity of energy DWR supplied to investor-owned utilities. Two of the three plans on the table modify this scheme by using a different formula to calculate fixed costs. ?The bottom line is this is not a fair allocation of costs,? according to Lee Schavrien, SDG&E vice president of regulatory affairs. The plans would shift $975 million to SDG&E, whose residential customers already pay the highest rates in the state, Schavrien said. The decision gets the same results as a settlement backed by PG&E, Edison, and The Utility Reform Network by shifting $1 billion of costs from 90 percent of the load to 10 percent of the load, he added. That proposed settlement would base contract costs on the amount of power utilities needed at the time DWR entered the deals. But the draft decision and alternate would reject the settlement, saying it relies on a flawed forecast of market costs. SDG&E?s greater reliance on the pricey contracts means that it should be on the hook for more of the costs, the two utilities and TURN stated in a July 27 letter to regulators. The deals provide about half of the energy SDG&E needs for its bundled customers, compared to approximately 33 percent or less for customers of PG&E and Edison, they argue. Sempra, SDG&E?s parent company, has saddled the state with one of the most overpriced long-term contracts, PG&E, Edison, and TURN added. Though the Sempra-DWR contract creates more than $1 billion of the $7.4 billion in overcharges, SDG&E is still trying to dodge its portion of contract overcharges, they assert. Commissioner Loretta Lynch?s alternate plan argues that DWR?s revised 2004 power cost request is inflated by more than $290 million. DWR has padded its numbers with $130 million to increase its reserve requirements beyond what it needs to cover ongoing costs, Lynch says. Further, she says DWR is not accounting for $160 million in expected refunds from the El Paso settlement over price manipulation allegations. Lynch adopts the same permanent allocation method as the draft decision by administrative law judge Peter Allen. Peevey?s plan pushes back the issue of permanent allocation from the August 19 commission meeting to its next meeting on September 2. He would adopt DWR?s request for 2004, reducing the amount required from ratepayers by $245 million, citing a statutory deadline.

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CPUC Grapples with Utilities? State Contract Costs

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