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Justices Probing Legality of Edison, PUC Deal

The state Supreme Court heard arguments Tuesday in a case that could determine whether Southern California Edison ratepayers are entitled to $3.6 billion that the utility has been collecting as part of a settlement with regulators.

For an hour, justices questioned the opposing sides about the legality of the state Public Utilities Commission's settlement in October 2001 of a federal lawsuit by Edison.

A lawyer for Edison warned the justices of "adverse implications" and uncertainty if the settlement is torn apart. But consumer groups say killing the settlement could translate into refunds of $850 per customer.

The case is laden with complex issues at the heart of the state's strategy for emerging from the energy crisis of 2000-2001 and restoring the financial health of a utility serving 12 million people. A decision is expected within 90 days.

Edison had sued the PUC, contending that the commission was driving the company to financial ruin by not allowing it to collect the full cost of buying power for customers. A court-approved settlement allowed Edison to apply $3.6 billion from electricity charges to its $6 billion in debts.

The Utility Reform Network, a consumer advocacy group, appealed the decision, calling it an illegal bailout at customer expense. The U.S. 9th Circuit Court of Appeals said in September that the PUC may have broken state laws and referred three key questions to the state's high court for consideration:

Did the PUC have the legal authority under the 1996 deregulation law to enter into the agreement?

Did the PUC violate the open meeting law by secretly reaching a settlement?

Did the PUC alter utility rates for Edison customers without holding public hearings and complying with other required procedures?

The Supreme Court justices seemed to zero in on the last two issues.

Justice Kathryn M. Werdegar asked whether the PUC was obligated to hold public hearings if the settlement amounted to a rate change.

But Edison and PUC attorneys contended meetings were not necessary because the rates never changed. The four cents in surcharges the PUC adopted in early 2001 were being extended long enough to allow Edison to pay off debts with extra money collected from ratepayers, they said.

"Rates paid by every single customer did not change by one penny," said Ronald L. Olson, an attorney representing Edison.

But Michael J. Strumwasser, representing the Utility Reform Network, argued that it was clearly a rate change and needed to be publicly aired.

"You cannot take $3.6 billion that consumers are entitled to as a refund" and give it to Edison, he said. "They [the PUC] were ... under the obligation to lower rates, because costs went down."

Strumwasser said not discussing the settlement at open meetings was illegal and called the PUC's handling of the matter "Wild West justice."

PUC attorney Gary M. Cohen said it would have been impossible to work out a deal in public, because of fears that disclosure of the deal would prompt one of Edison's creditors to force the utility into bankruptcy.

If the Supreme Court throws out the settlement for procedural reasons, Cohen said, the PUC and Edison could conduct a public process that meets the court's dictates.

Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights said he expects that the PUC will use a "kangaroo court" to approve the settlement and, if necessary, will seek help from the Legislature to make a bailout legal.

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