San Diego Business Journal

State regulators may have been congratulating themselves last week over an agreement averting a new rate increase on California's electricity customers, but that won't stop a rate increase already in progress for San Diego Gas & Electric Co. ratepayers.

Also, questions of accountability have been raised, as one state agency has been stripped of the authority to monitor some electricity purchases made by another.

The state's Department of Water Resources issued a "revenue requirement" July 22 to the California Public Utilities Commission. The document stated the DWR actually needed less money than the rate increase the CPUC had already imposed on DWR's behalf.

B.B. Blevins, assistant director for energy at DWR, said the water department needed an increase of about 1.65 cents per kilowatt, averaged out in the service areas of the three major utilities in the state.

Pacific Gas & Electric and Southern California Edison customers began paying a 3-cent kilowatt increase last month to pay for the DWR's purchases. A similar rate increase for SDG & E; customers is pending, he said.

However, as part of the deal, the CPUC decided July 18 to draft an agreement ceding some of its traditional role in ensuring fair electricity rates to the state DWR. That means the DWR will be the entity to determine whether its own electricity purchases are "just and reasonable," not the CPUC.

However, the impending rate increase for SDG & E; customers will go toward collecting the debt the DWR incurred on behalf of SDG & E; in what it says is a "just and reasonable" manner.

Kelly DeVine, a spokeswoman for the CPUC, conceded the issue was a "hot potato," but said she didn't know if it meant that the DWR would become the watchdog agency for itself.

The tentative agreement hammers out a provision of AB-1X, the emergency law passed at the beginning of the year. That law put the DWR in charge of purchasing electricity on behalf of California's investor-owned utilities, she said.

But at the same time, the CPUC does not have oversight authority over those purchases, DeVine said.

Although the CPUC does not have oversight ability over the DWR, it's possible that another agency may, DeVine said.

"I think the Bureau of Audits sometimes looks at other agencies; they looked at ours once. I don't know if that's the arrangement that the governor and the Legislature hoped for, but we certainly, according to this law, wouldn't (have the authority)," she said.

$900 Million Needed

That leaves the CPUC to accept DWR's figures. And this comes as the commission debates a DWR-proposed rate increase for SDG & E; customers, DeVine said.

"Currently, there is a proceeding before us where the Department of Water Resources has said they need $900 million for SDG & E;," she said. "So we would need to figure out how to collect that money."

The decision on the rate increase could come as early as Aug. 2, DeVine said.

The tentative agreement was published last week to allow public comment. Based on the comments, the agreement could be altered , but it must still comply with AB-1X, she said.

Comments are due Aug. 1.

Scott Linsey, supervisor with the Office of Ratepayer Advocates , an advisory group to the CPUC , said his office has not taken a position on the agreement drafted by the commission. However, he noted that AB-1X had earlier stripped CPUC of part of its oversight role over electricity purchases.

"The commission still has the overall authority to ensure that total rates are just and reasonable. And it has very significant authority with respect to the cost that utilities incurred. However, it has much less authority over the cost that the Department of Water Resources incurs," he said.

'Net Short'

As Linsey reads the law, it says that the DWR purchases the "net short," or the amount of electricity that the three major utilities does not already have in hand. The CPUC then has an obligation to set rates so the water department is reimbursed for what DWR says it paid, he said.

DWR's Blevins said there are a number of safeguards in place, pointing out that the CPUC makes the final determination as to any rate increases.

Also, when the CPUC decides on a rate increase, it has other information before it to help it make that determination , such as the costs that utilities are incurring for the same electricity.

Blevins added that the contracts are public, with the exception of immediate information spot purchases. And those are made public after a period of time, he said.

The reason for the delay in making spot purchases public is that the spot market is volatile. This forces the department to shop around for the best deals, so making its purchases out in the open could hurt its market position, Blevins said.

"Eventually, all our activities and their costs are available for public scrutiny," he said.

The DWR is not anticipating an additional rate increase until the end of 2002. Estimated revenue requirements, based on a conservative estimate of future costs, show that the water department has all revenue it needs to purchase electricity, Blevins said.

"We determined that the 3-cent rate increase was going to be more than adequate to handle our costs and responsibilities associated with fulfilling the net short," he said