Alternative PG&E Financing Plan Killed at Capitol

By Published On: October 3, 2003

Despite winning the support of both chairs of the Legislature’s two energy policy committees, a bill seeking to save Pacific Gas & Electric ratepayers up to $2.8 billion in bankruptcy-related financing costs fell flat September 10. SB 772, sponsored by The Utility Reform Network, would have allowed state regulators to consider instituting a dedicated rate component in allowing PG&E to build up its finances and step out of the shadow of bankruptcy. TURN, however, could attempt to repackage the proposal before the California Public Utilities Commission. Regulators must ratify the pact that commission staff reached with PG&E. The organization is hopeful that CPUC members might be swayed by the promise of ratepayer savings under TURN’s plan. The current proposed settlement reached between PG&E and CPUC staff calls for the creation of a $2.2 billion regulatory asset to be added to the utility’s ledger. PG&E would be able to earn a rate of return on that figure?and depreciate against it?over nine years. By comparison, TURN’s proposal would back the $2.2 billion with bonds recoverable through rates and could save PG&E customers between $400 million and $2.8 billion, according to the ratepayer group. The bill’s defeat left TURN senior attorney Mike Florio embittered. “It’s just a demonstration of how you can spread half-truths, scare people and strong-arm them so you can get your way,” he said of the lobbying “blitz” PG&E employed in the days leading up to the committee vote. “It’s a travesty that we’re not going to give the CPUC the authority to consider something that might save ratepayers money.” Senate Energy, Utilities & Communications Committee chair Debra Bowen (D-Redondo Beach) also reacted in frustration. “This is a plan that could have cut that [ratepayer] bill by nearly a third, yet when PG&E said it didn’t want its bankruptcy settlement plan touched by anyone, a majority of the committee members opted to sit on their hands.” The California Manufacturers & Technology Association and the California Large Energy Consumers Association argued in favor of SB 772, claiming that it would reduce the costs of financing PG&E’s return to fiscal health. According to CLECA representative Delaney Hunter, rates in PG&E service area would be 25 percent higher than in other investor-owned utility territories if the CPUC/PG&E settlement is ratified. Florio warned that such a development could send some California businesses packing. “If you lock that into place over the next decade, what kind of economic dislocation is that going to cause?” he asked. Where bill proponents argued that SB 772 would merely give regulators the opportunity to call for a dedicated rate component, PG&E senior vice president Dan Richard said the measure would “prejudge” proceedings at the CPUC regarding the utility’s bankruptcy. Moreover, it “could delay our emergence from Chapter 11 by up to a year,” said PG&E spokesperson Ron Low. He added that a study conducted by Lehman Brothers on behalf of the utility showed that such a delay could cost PG&E ratepayers about $1.6 billion in additional financing costs. All told, the utility plans to raise approximately $8 billion to right its financial fortunes. “Having the regulatory asset strengthens our ability to raise money as an investment-grade company,” said Low. The utility also charged that acceptance of TURN’s proposal would invite appeals and other challenges that could postpone PG&E’s recovery, in turn causing PG&E to miss out on low interest rates for borrowing cash. Further, issuing bonds to back the $2.2 billion asset “could leave us a junk-bond rated company” and cost ratepayers more than $2 billion, Low said. The Capitol hearing convened by the Assembly Utilities & Commerce Committee on Wednesday ended with three votes in support of the bill and five votes against. Six members of the committee chose not to cast ballots. Lois Wolk (D-Davis) voted against SB 772’s passage despite having voted in favor of the bill the day before when the Assembly sent the measure to a third reading by a count of 40-32. Though SB 772 can be reintroduced this session, Capitol sources indicated that there is little chance the bill will rise again this year. The deadline for voting on bills in the 2003 session is Friday, September 12. If the dedicated rate component option were to be accepted in PG&E’s federal bankruptcy proceeding, the result would be “rock-solid” and impervious to legislation or regulation, Florio said?the same reason that TURN is concerned about the pending PG&E settlement. In other energy legislation news this week, a bill that would ensure IOUs can recover any investments made in new generation remained in play. AB 653 by Fabian N??ez (D-Los Angeles) had not cleared a final vote at the time of this reporting. PG&E’s Low said the utility has taken no position on the measure. SB 288, a bill by Senator Byron Sher (D-Palo Alto) that would put the federal government’s longtime emissions standards (prior to December, 2002) under state law, appears to be stalled. The measure passed the Assembly floor on Wednesday with a narrow 43-35 vote but was then consigned to the Senate’s “unfinished business” file the next day. SB 67, a bill by Debra Bowen that would allow IOUs to procure green power without first having secured investment-grade credit ratings, won approval of the Legislature on September 11. Legislators are spending most of their time these days in conference committees, trying to work out knotty healthcare and workers’ compensation issues. As such, the more ambitious energy measures of 2003, which faltered earlier this session amid hopes of further action, are all but dead for this year. The list includes reregulation vehicle SB 888 by Senator Joe Dunn (D-Garden Grove) and its lower-house, direct-access competitor, AB 428 by Keith Richman (R-Northridge); another Richman bill (AB 425) that would have continued discounted rates for utility customers on interruptible schedules; energy-agency consolidation bill AB 808 by Joe Canciamilla (D-Pittsburg); SB 118, a Bowen measure that would have held CPUC members to tougher conflict-of-interest guidelines; and SCA 6, a measure by Jim Battin (R-La Quinta) that would see CPUC members elected rather than appointed. Also this week, Governor Gray Davis appointed Frank Miramontes to the California Independent System Operator board of governors. Miramontes worked in the Los Angeles Department of Water & Power’s electric generation group for more than 30 years and is the president of International Brotherhood of Electrical Workers local 18 in Los Angeles. His appointment brings the total number of Cal-ISO governors to five. Tim Gage, appointed to the board earlier this year, received Senate confirmation this week for his post.

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