San Diego Business Journal Energy: Consumer Activists Claim State Plan Provides Utility With 'Windfall Profits'

Frustrated by a proposed deal letting San Diego Gas & Electric Co. keep what they call "unjustified windfalls," consumer activists have taken the matter before the California Public Utilities Commission.

The Utility Consumers' Action Network joined with San Francisco-based The Utility Reform Network and the CPUC's Office of Ratepayer Advocates in releasing an alternate payment plan Oct. 10.

The new plan would compel SDG & E; to shoulder more responsibility in eliminating a "balancing account" debt customers allegedly owe to the utility, said Michael Shames, executive director of UCAN.

The alternate plan is in reaction to a deal announced June 18 between SDG & E; and the state's Department of Water Resources to resolve the utility's balancing account of $750 million.

The balancing account is the difference SDG & E; customers have paid for electricity under a temporary rate cap and the wholesale price the utility paid for that electricity, Shames said.

However, consumer activists say subsequent analysis revealed that the memorandum of understanding between SDG & E; and DWR was flawed.

'Undesirable' Deal For Consumers

"It turned out to be a great deal for Sempra and its affiliates, and an undesirable one for SDG & E; customers, as well as the customers of other utilities in the state," Shames said.

Shames said their analysis on the state deal reveals the original $750 million debt neglects to include several overcharges to customers, which would either eliminate the balancing account or even entitle customers to a refund.

One such overcharge is SDG & E;'s intermediate-term contracts. These contracts allowed the utility to make about $450 million selling power to the state, while charging customers a higher price for the power it was buying from the state, he said.

If the deal stands, SDG & E; still gets to keep the majority of those profits, while still collecting on the balancing account. The utility's promised concessions of $319 million aren't that much of a giveaway, he said.

Also, the MOU would resolve a number of disputes SDG & E; has pending before the CPUC, preventing the commission from ruling on these issues. Shames believes the utility, and its parent company, Sempra Energy, are settling with the state because they are "nervous" what the regulatory agency might do.

"Sempra makes no concessions, and SDG & E; stands to make more money with this deal than if there was no agreement at all," he said.

Alternative Plan

In response, the consumer groups came up with their own version of the deal. The alternate proposal requires SDG & E; to make more meaningful concessions, preventing what he called "unjustified windfalls" of more than $135 million from going to SDG & E; shareholders, Shames said.

That money would go toward rate decreases for all SDG & E; ratepayers. Smaller customers would get a break of $20 million per year, or about $9 per customer, while large users would get a one-time reduction of $204 million, Shames said.

The deal would pay off the balancing account in less than four years even at the reduced rates, he said.

The consumer groups have filed their alter nate proposal before CPUC. Shames hopes the commission will consider this proposal, along with the SDG & E;'s proposal, before issuing any final decision on resolving the outstanding accounts owed to the utility.

Ed Van Herik, spokesman for SDG & E;, had strong words for Shames' actions.

"It's clear that UCAN is making a last-ditch effort to derail the regulatory process and undermine the authority of the PUC and the governor. We think that UCAN's approach could result in protracted litigation and unnecessary delays, all in the guise of solving a problem that's already been solved," he said.

The MOU, as proposed by SDG & E;, is the best way to resolve the balancing account, Van Herik said.

"We still see it as the best opportunity to remove a heavy burden from San Diego customers," he said. "The accompanying future payments range from $400 for homeowners to $12,000 for mid-sized businesses."

Van Herik strongly disagreed with Shames' belief that the balancing account doesn't exist.

"That is money that was paid out to buy power for San Diego customers; it was a real bill for real power. The market prices were quite clear to anyone who wanted to see them," he said.

Van Herik also addressed the issue of the intermediate-term contracts.

"The intermediate power contracts are the subject of a suit right now. We have proposed a settlement (under the MOU) wherein we have offered to apply $219 million from the proceeds of those contracts to pay off a large portion of the undercollection," he said.

SDG & E; was also willing to contribute another $100 million toward the balancing account due to a "reasonableness review." The CPUC had ruled the utility had overpaid for some of its electricity, and those costs should not be passed on to consumers, Van Herik said.

Van Herik added that the CPUC has already issued several rulings to implement portions of the MOU. Other actions by the commission will follow.