NEWS 

PUC Sidesteps On Who Pays Utilities' Costs / Meanwhile, commision OKs rate 
cap for San Diego 
David Lazarus, Chronicle Staff Writer 

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09/08/2000 
The San Francisco Chronicle 

FINAL 
A1 
(Copyright 2000) 
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Amid growing confusion over California's energy future, state regulators 
yesterday ducked the politically volatile question of whether utilities such 
as PG&E can sock customers with billions of dollars in extra electricity 
charges. 
The Public Utilities Commission did approve a rate cap for San Diego 
electricity customers. 
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But frustrated commissioners hinted they may kick the matter of who pays for 
utilities' costs back to the state Legislature, which had been hoping the PUC 
would solve the thorny question. 
For his part, Gov. Gray Davis suggested yesterday that the issue should stay 
with the PUC. 
"Everyone is passing the buck," said Mike Boyd, president of Californians for 
Renewable Energy, a Sunnyvale nonprofit group. "The Legislature doesn't want 
to touch it. The PUC doesn't want to touch it. It's a hot potato." 
And the stakes are very high. 
As The Chronicle reported yesterday, Pacific Gas and Electric Co. hopes to 
hit its customers with all the costs it will accrue under a current rate 
freeze -- as much as $15 billion -- when the utility's rates are deregulated 
in early 2002. 
For its part, San Diego Gas & Electric is estimating that its costs could run 
as high as $800 million, and it too wants ratepayers to shoulder the full 
burden. 
Boyd said California lawmakers and energy regulators ultimately may be forced 
to call on the Federal Energy Regulatory Commission to weigh in on the 
matter. 
RELUCTANCE TO PLAY REFEREE 
However, the commission's chairman, James Hoecker, said in a telephone 
interview from Washington, D.C., that federal authorities would be reluctant 
to play referee. 
"The recovery of costs could arguably be an issue for us," he said. "But 
we're not in the habit of telling states what their laws mean." 
That's something state officials themselves are still grappling with. 
Amid confusion over whether they even have jurisdiction over such an issue, 
the PUC commissioners said their approval of the rate cap in San Diego is 
unrelated to whether utilities should be compensated for out-of-pocket 
expenses. 
The rate cap, as mandated in a bill passed by lawmakers last week, required 
the blessing of the commission to take effect. 
LAW FUZZY ON COMPENSATION 
The governor signed the bill into law on Wednesday. However, the law is fuzzy 
about whether the local utility should be compensated for expenses incurred 
as a result of the rate cap. 
At issue is the difference between what utilities must pay for power in the 
turbulent wholesale energy market and the amount they can charge ratepayers. 
California's 1996 electricity deregulation bill froze power rates statewide 
to stabilize the industry during a transition to a free- market arena. 
San Diego was the first city to face the full impact of deregulation when its 
rate freeze was lifted last year. Average power bills subsequently doubled, 
sparking outrage and protests among ratepayers. 
The governor has accused power generators of manipulating prices and gouging 
consumers. State and federal authorities are investigating such charges. 
By imposing a rate cap yesterday, the PUC effectively brought electricity 
deregulation to a halt as lawmakers and regulators struggle to fix the 
current system. 
"Regulation is coming back because it has to," said Nettie Hoge, executive 
director of the Utility Reform Network, a San Francisco consumer group. 
RATE CAP RETROACTIVE 
In line with the new law, the PUC capped San Diego power rates for 
residential customers and small businesses at 6.5 cents per kilowatt- hour, 
retroactive to June 1. This means average monthly power bills will be about 
$68. 
The commission also opened an investigation into the "prudence and 
reasonableness" of San Diego Gas & Electric's decision not to secure 
long-term wholesale energy contracts. Instead, the utility exposed its 
customers to daily swings in energy prices. 
"Our basic obligation is to assure the people of California that the rates 
they pay for energy are just and fair," said PUC Commissioner Carl Wood. 
However, he stressed that yesterday's PUC action did not address the question 
of whether utilities should be compensated for deregulation-related expenses 
and said the matter should be taken up at a later date. 
"We are acting too much in haste," agreed Richard Bilas, a Republican 
appointee who seldom sees eye-to-eye with Democratic- appointee Wood on PUC 
decisions. 
"The most the commission should do is make a recommendation to the 
Legislature," Bilas said. 
For his part, the governor yesterday moderated the aggressively pro-consumer 
stance he has taken in response to the state's energy woes. Asked whether 
utilities should be able to place a surcharge on future bills to recover 
costs related to deregulation, Davis adopted a more conciliatory tone. 
"I do believe utilities should not be left holding the bag for any problems 
associated with the 1996 law if they have acted responsibly," he said. 
PG&E officials told The Chronicle on Wednesday that the utility is now about 
$2 billion in the hole as a result of its rate freeze and that this amount is 
rising by nearly $700 million a month. 
Sen. Dede Alpert, D-San Diego, one of the authors of the rate-cap 
legislation, said that while the question of who should tackle the surcharge 
issue remains up in the air, a likely outcome is that both the utilities and 
ratepayers will end up shouldering some costs. 
"In the end," she said, "consumers are likely to pay some portion of this." 

PHOTO; Caption: Gov. Gray Davis said the issue of passing on costs shouldstay 
with the state PUC.