The state Supreme Court on Tuesday began picking apart the legality of
a 2-year-old bailout of Southern California Edison in a case that could
affect the energy bills of millions of PG&E customers.
The 2001 bailout agreement between Edison and state regulators has kept
electricity rates artificially high so the utility can collect enough
money to pay its energy-crisis debts.
The consumer group The Utility Reform Network says the deal -- brokered
in secret -- broke several state laws and should be voided. It says at
least $3.6 billion in wrongly collected rates should be refunded to ratepayers.
The case could affect customers of Pacific Gas and Electric, whose rates
are also being kept artificially high while the utility struggles to emerge
In oral arguments in San Francisco, justices zeroed in on two key issues:
Did the Public Utilities Commission "change'' rates with
the Edison agreement, and therefore violate its own rules by not holding
public hearings? And did the commission violate open-meeting laws by approving
the settlement in private?
Edison and PUC attorneys said the agreement did not affect Edison's
rates and therefore did not require a public hearing.
"The rates being paid by every single customer did not change,''
said Ronald Olson, an attorney for Edison.
But TURN attorneys said the agreement effectively changed rates by keeping
them higher than they would have been without the bailout.
"It is a change,'' said Michael Strumwasser, an attorney representing
TURN. "Before the settlement, the ratepayers had $3.6 billion coming
back to them.''
The case stems from the Legislature's deregulation of the energy market
in 1996. To help ease the state's monopoly utilities into a competitive
market, lawmakers froze consumer electricity rates at 1996 levels and
said utilities could keep any excess profits to help pay the costs of
their power plants.
The rate freeze was due to expire in March 2002. But in the meantime, PG&E
and Edison had racked up billions of dollars in debt from skyrocketing
The case has been winding through the courts since 2000, when Edison sued
the PUC in federal district court, arguing that federal law required the
commission to raise rates so the utility could recover costs related to
The following year, the PUC raised rates twice. It then settled the Edison
lawsuit by promising to keep rates stable through 2005 or until the utility
had recovered its losses.
TURN challenged the Edison deal in court, saying it violated the 1996 rate
freeze by not allowing rates to drop to natural levels. Last year, the
U.S. 9th Circuit Court of Appeals endorsed many of TURN's concerns,
but said the state Supreme Court should review possible state-law violations.
The justices also asked several questions about why the deal was negotiated
behind closed doors.
PUC attorney Gary Cohen said the Edison agreement was a sensitive legal
matter and that "it would be impossible for the commission to engage
in discussion of litigation and settlements'' in public.
"It's not as if it happened in the dark of night,'' said
Cohen, noting that the commission immediately reported the deal in a public
meeting and news conference.
But Strumwasser said the commission should have at least voted on the deal
in an open meeting and allowed the public to be heard.
"I resist the suggestion that the values of our open-meeting laws
need to be constrained,'' he told the court. "This decision
For the first time, PUC attorneys acknowledged that the case could affect
PG&E. The Northern California utility filed for bankruptcy in 2001,
and a U.S. Bankruptcy Court judge is trying to devise a plan that will
allow the company to return to financial health.
Two proposals are being discussed, including one by the PUC that would
keep rates high enough for PG&E to pay down its debts.
"I think if the court says we can't use the monies collected to
help the utilities, then PG&E's plan and the PUC plan are in serious
jeopardy,'' Cohen said after the court hearing.
The court has 90 days to rule on what Justice Joyce Kennard described as
"highly complex litigation.''