California PUC vote could short circuit bond sale

By Kate Thomas
OGJ Online

HOUSTON, Oct. 2, 2001 – The California Public Utilities Commission on a 4-1 vote Tuesday defeated a controversial rate agreement state officials said was needed to issue a record $12.5 billion in power bonds.

State Treasurer Phil Angelides had warned a delay or defeat could postpone the bond issue until next year, possibly throwing state finances into turmoil. PUC Commissioner Geoffrey Brown, the measure’s lone supporter, said the state could be $9 billion “in the hole” next year and face a “tremendous cash crunch” if the rate proposal didn’t pass.

The proposed agreement set out a method of meeting the California Department of Water Resources’ revenue requirements for its power purchases on behalf of the state’s electric utilities. The payments would have been funded by California electricity customers and used as collateral to issue the bonds and to repay the interest.

The state proposed issuing bonds to repay $6 billion borrowed from the general fund to buy electricity beginning in January and to fund future power purchases. The DWR stepped into buy power after Pacific Gas & Electric Co. and Southern California Edison Co. couldn’t pay for wholesale power when prices skyrocketed. The utilities were caught between high prices and frozen retail rates.

PUC Pres. Loretta Lynch earlier signaled commissioners were not happy with the rate agreement. Tuesday she said it would keep the DWR in the power business for at least 15 years and force consumers to pay unnecessarily high prices under $43 billion worth of long-term contracts signed this summer.

Commissioners also objected to provisions in the agreement that would force the PUC to relinquish its oversight role over whether electricity rates are just and reasonable. Commissioner Henry Duque said under the agreement the DWR would “serve as its own judge and jury for rates,” which he called unconstitutional. I can’t put my name on this agreement,” he said.

Commissioner Richard Bilas said he voted against the proposal because of onerous “take or pay” provisions in the DWR contracts that would force utilities to buy more expensive power than they could produce themselves. He likened the provisions to similar ones in natural gas contracts that took years to unwind.

Commissioners voting against the measure said they preferred an alternative approach that lawmakers passed but has yet to be signed by California Gov. Gray Davis. SB18XX offered more flexibility, Lynch said.

DWR said it needed to collect $12.6 billion from electric retail customers of the three major investor-owned utilities to cover purchases between January 2002 and Dec. 31, 2002. DWR said it determined its revenue requirement was just and reasonable based on competitive solicitation for power, cost-based recovery, and true-up provisions of forecasts to be made in the future.

But the agency has been criticized for signing what in retrospect appear to be high-cost contracts and for having hired consultants with alleged conflicts of interest.

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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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