PG&E's Proposed Settlement Calls for Rate Increases

A multiparty settlement in Pacific Gas & Electric's general rate case would add $213 million to the utility's revenue requirement next year, with revenues rising an additional $588 million in 2010. The agreement, if approved by the California Public Utilities Commission, would also extend the usual three-year applicability of a general rate case by an additional year. PG&E would require ratepayers to pay a total of $4.927 billion effective January 1, 2007. The amount was a compromise. The utility had originally asked for $5.109 billion, while the Division of Ratepayer Advocates (DRA) pushed for $4.734 billion in revenues. The Utility Reform Network and the Aglet Consumer Alliance urged a lower amount, seeking $4.445 billion. While not an all-party settlement, the proposal includes the support of the DRA and the Coalition of California Utility Employees. Certain sections of the settlement also have the backing of the California Farm Bureau and three Central Valley irrigation districts. Two consumer groups, TURN and Aglet, oppose it. "For now, I cannot endorse any element of the deal," stated James Weil, director of Aglet. That group, representing agricultural consumers, "knows nothing of the give and take" that resulted in the settlement, noted Weil. "They settled our issues without our consent, and presented it as a fair compromise," added TURN attorney Matt Freedman. A "typical" PG&E customer would see a 0.2 percent increase in electric bills and a 1.6 percent increase in charges for gas services, according to the CPUC. Until recently, settlements have been rare in rate cases. They usually are heavily litigated as stakeholders defend their positions on one or more of the myriad issues involved in setting rates - and utilities are loath to give in on their positions. According to the commission, there have been only three previous settlements. PG&E settled last in 2003, and San Diego Gas & Electric settled its 2004 rate case. Southern California Edison also settled its 1995 rate case. Some of the issues that would be settled in the proposal include: - Approving about $772 million in administrative and general expenses - $34 million less than the utility's request and $70 million more than the Division of Ratepayer Advocates' recommendation. - Leaving unchanged direct-access fees. - Removing $4.7 million from PG&E's request that is related to settling litigation over chromium 6 contamination lawsuits. - Adding $19 million for a feasibility study on extending the license of the Diablo Canyon nuclear plant for 20 years. - Removing the cost and financing of nuclear fuel from the rate base. - Transferring hearings on a performance incentive mechanism for the utility into another proceeding. - Keeping the front counters at local offices open for customers. Issues that are anathema to consumer groups include the $19 million for a feasibility study for nuclear plant relicensing because there has already been one feasibility study done and, generally, they do not want the plants to be relicensed. But Freedman explained that it isn't just about the money. "If they do the study, we want them to come back to the commission before seeking a license with the Nuclear Regulatory Commission," he said. Two other issues that TURN is holding out on are accounting for customer deposits and tax benefits associated with employee stock ownership. The group doesn't want the utility to buy a new airplane, either. The initial reaction from the financial community was positive. On August 22, Fitch Ratings put the utility on a positive BBB rating. "The rating action recognizes the constructive nature" of the settlement, the company noted. "The improved regulatory/legislative environment in California is particularly important for PG&E given its dependence on wholesale power markets to meet its growing load requirements," Fitch analyst Philip Smyth stated. He added that there's a "more balanced regulatory environment currently in place in California." Standard & Poor's rated the settlement as "neutral" in terms of credit quality. The CPUC could vote on the settlement in February 2007, according to the commission. Rate increases would be retroactive to the beginning of next year.

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PG&E’s Proposed Settlement Calls for Rate Increases

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