PG&E Pension Deal Covers $1.3B; Utility Totals $3.6B

After a long hiatus, California utilities have been quietly contributing ratepayer money to their employee pension plans. But an aging workforce, rising health care bills, and a skittish stock market is about to cause an increase in the use of ratepayer money to cover unfunded liabilities to utility retirees to the tune of $3.6 billion. A Pacific Gas & Electric pension plan agreement may result in the first sizable use of ratepayer money to fund utility pensions in more than a decade under an agreement reached between the utility, the Division of Ratepayer Advocates (DRA) and the Coalition of California Utility Employees. The matter comes before a California Public Utilities Commission administrative law judge March 20. A look at recent utility annual reports reveals that the unfunded portion of PG&E's projected pension and retirement benefits totaled $1.355 billion at the end of 2005. That is up 7 percent from $1.267 billion a year earlier. The Los Angeles Department of Water & Power has unfunded liabilities to its existing and future retirees that total $1.6 billion. Southern California Edison and a Sempra regulated utility have unfunded liabilities too. The Sacramento Municipal Utility District began contributing to its pension fund again. Compared to the huge utility pension funds, the level of unfunded liabilities is not yet great. "The utilities' pension funds are in good shape," said Mark Pocta, Division of Ratepayer Advocates program manager. However, to keep their funds in the black, utilities increasingly are turning to ratepayer money as the steam built up in their pension plans during the 1990s bull market dissipates. Pressure on the funds will grow as more employees in the state?s aging utility workforce retire. Despite that outlook, consumer advocates have not focused on the potential for utilities to tap ratepayers to meet their expanding pension plan needs, said Pocta. DRA "has been the only party actively participating in the pension issue," he said. Matt Freedman, The Utility Reform Network attorney, said he could not comment on a pending PG&E pension funding agreement because TURN has not followed the issue. The Utility Consumers? Action Network has not followed recent developments with utility pensions either, said Michael Shames, its executive director. Under the deal, PG&E would use $176.5 million of ratepayer money this year. It would use $111.3 million in 2007, 2008, and 2009 to nudge its pension plan toward full funding. Unless PG&E makes contributions now, said Pocta, its fund balance will deteriorate "if things continue as they were." Including both ratepayer money and its own assets, the company plans to contribute $273.2 million to the fund this year and $176 million a year in 2007, 2008, and 2009. A total of $510.4 million in ratepayer money would be used toward the contributions, compared to the $803 million PG&E initially sought. That includes $155 million in rate collections already authorized this year. PG&E initially sought not only to use $155 million in ratepayer money in 2006, but also to use some $648 million in ratepayer money for pension contributions in its 2007 general rate case. "These lower contributions result from an update for actual plan investment returns in 2005 that exceeded the expected return of 7 percent and an increase in assumed plan returns from 7 percent to 7.5 percent in 2006-2009," said Peter Corripo, PG&E director of investments and benefits finance, in a legal declaration filed with the agreement.

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PG&E Pension Deal Covers $1.3B; Utility Totals $3.6B

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