TURN and ORA Push to Lower Cost of PG&E Bankruptcy Deal

Consumer advocates urged the California Public Utilities Commission to rework the proposed bankruptcy settlement reached between Pacific Gas & Electric and the CPUC staff. They specifically called for replacing the proposed $2.2 billion regulatory asset with a dedicated rate component to save ratepayers billions of dollars in avoidable costs. In August 29 filings to the CPUC, The Utility Reform Network and the Office of Ratepayer Advocates said the current agreement would unfairly enrich PG&E and its shareholders and saddle ratepayers with a bill as high as $5 billion. Both groups are calling for a dedicated rate component backed by bonds in place of the regulatory asset, which would allow PG&E to achieve investment-grade rating while saving utility customers between $3 billion and $5 billion over nine years. The proposed $2.2 billion regulatory asset would allow PG&E to issue long-term debt to meet its cash needs. Creating a regulatory asset specifically would boost PG&E's rate base by 15 percent without any capital investment or risk, and also carry "substantial tax and return on equity costs" to ratepayers, said Margaret Meal, TURN's financial expert. On the other hand, creating a $2.2 billion dedicated rate component, which is a straight pass-through, would not include hefty costs and is the reason why TURN and ORA support this financing alternative. "The savings that can be achieved through this relatively simple and modest modification are far too large, and the burden that would otherwise be imposed on ratepayers and the economy far too great, for the commission to disregard this opportunity," stated Mike Florio, TURN senior attorney. TURN's filings also point out that the proposed settlement would allow PG&E shareholders to reap returns well in excess of returns under a traditional cost-of-service ratemaking. Under the proposed tentative bankruptcy settlement reached in late June, which must be approved by the CPUC by the end of the year, PG&E would keep its generating assets under commission control. The investor-owned utility in turn would keep the $3.6 billion in headroom it collected at the end of 2002. A fictitious $2.2 billion regulatory asset would be created, accompanied by an 11.2 percent rate of return over nine years to boost its bottom line. Beginning in January, rates would drop by $0.005/kWh. The CPUC raised them $0.04/kWh during the energy crisis. Bob Glynn, PG&E Corp. chief executive officer, in a speech to Lehman Brothers September 3, said the tentative settlement would allow the company to deliver a strong financial performance. "We believe the agreement is on track to achieve the first-quarter 2004 target for the utility's exit from Chapter 11," he said. In their filings, TURN and the ORA came out with different estimates of what the tentative settlement would cost utility customers. TURN's Florio estimated the change in the borrowing structure would save ratepayers $2.8 billion. He also asked the commission to establish a balancing account to track future tax benefits arising from the energy crisis and bankruptcy proceeding. ORA proposed extending the current rates, which have allowed PG&E to reap about $825 million this year in headroom-a rate above cost of service-to reduce PG&E's procurement tab. If any debt remains, it should be paid off via a dedicated rate component, for an estimated net savings between $3.6 billion and $4.9 billion.

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TURN and ORA Push to Lower Cost of PG&E Bankruptcy Deal

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