California PUC to investigate utility holding companies

By the OGJ Online Staff

HOUSTON, Jan. 10, 2002 — Taking aim at the financial dealings between the state’s three investor-owned utilities and their parent companies, the California Public Utilities Commission Wednesday opened an investigation into whether the holding companies violated regulations.

The commission is challenging whether PG&E Corp. and Pacific Gas & Electric Co., Sempra Energy and San Diego Gas & Electric Co., and Edison International and Southern California Edison Co. gave first priority to serving California electricity consumers.

PG&E was dismissed from the proceeding because the PUC was considering taking legal action in the utility’s bankruptcy reorganization. The PUC interim decision concluded the obligation to serve trumps a holding company from acquiring assets of its utility subsidiary at any price, “if the acquisition impairs the utility’s ability to fulfill its obligation to serve or to operate in a prudent and efficient manner.”

The order notes Pacific Gas & Electric’s proposed reorganization plan would transfer “significant assets” from the utility to its parent. PG&E Corp. could “unfairly benefit” from such a transfer to the detriment of ratepayers, according to the order.

The commission previously termed PG&E’s plan the biggest “regulatory jailbreak” in history because certain of the assets would no longer be subject to state regulation under the plan. Earlier this week, the PUC also asked the federal bankruptcy court for permission to submit its own plan to reorganize Pacific & Electric.

The interim order said under certain circumstances utility holding companies have an obligation to infuse “all types of capital” into their respective utilities when necessary to fulfill the obligation to serve. The commission said it didn’t “conclusively” find any of the companies violated their “first priority” obligation, but it will investigate on a case by case basis.

The PUC rejected the holding companies’ argument that the commission doesn’t have enforcement jurisdiction in the case. The investigation is an outgrowth of the deregulation debacle in the California power market in 2000-2001. Under a retail rate freeze, California’s investor-owned utilities couldn’t pass on the full cost of skyrocketing wholesale electric bills.

The PUC ultimately raised rates to help cover the costs but not before Pacific Gas & Electric sought Chapter 11 bankruptcy protection. Southern California Edison cut a deal with the PUC, after a rescue effort by Gov. Gray Davis failed to muster enough support among state lawmakers.

Meanwhile, a PUC study found the utilities transferred millions of dollars in dividends to the parent companies. Questions have been raised about whether the transfers were appropriate. The utilities have argued the dividends were perfectly legal.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at

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