Chronologically Ordered LOCAL POWER News Index Local Power's Community Choice Law, Septebmer 2002 PG&E Attempts to Lock Down Its Captive Customers With New Exit Fees in California:

Asks California Public Utilities Commission to Guarantee Power Contracts That Would Block Cities Seeking To Find Alternative Energy Providers in 2003

by Paul Fenn

Northern California. Pacific Gas & Electric Co. is seeking state approval of new power supply contracts that if approved will erect new barriers to a growing list of cities like San Francisco that are seeking alternative energy suppliers under the state's new Community Choice law, known as AB117 or Chapter 838.

In a letter sent last week to the California Public Utilities Commission (CPUC), the PG&E Corp.-owned utility submitted contracts to the CPUC for approval to buy power from 2003 through 2005. California's two other investor-owned utilities also preparing similar contracts. Edison International's Southern California Edison utility subsidiary will send its plans to buy power to the CPUC "in a couple of weeks," a company spokesman told Reuters yesterday. Sempra Energy's San Diego Gas & Electric utility unit indicated it has also contacted power suppliers.

The move by utilities to win state-approval of power contracts marks a new phase in California's energy crisis in which the utilities will attempt to use CPUC guarantees to lock in their customers and prevent cities and regions from breaking away with resulting new Exit Fees. By winning state guarantees, the utilities will create new Exit Fees for communities seeking alternative suppliers. In short, PG&E, Edison and Sempra are competing with communities that want to escape them, tying up electrical capacity in the West that would otherwise be available to those communities.

PG&E is the first of the three utilities to file its power contract plans with state regulators, making it first to attempt to block its customers from leaving in droves next year when the Community Choice law will allow whole communities to legally break away to find their own power suppliers. With San Francisco planning to seek an alternative energy provider early next year and other northern California communities like Oakland, Berkeley, Marin County and others not far behind, it is clear that the monopolies - with Governor Davis' apparent support - are attempting an end run around these communities.

The CPUC passed an order last week directing the companies to resume buying power starting Jan. 1, 2003, putting an end to nearly two years of emergency power purchases by the state's Department of Water Resources. The state also began selling its $11.95 billion power-revenue bonds last week to finance the Second Bailout of the monopolies when the state assumed the Obligation to Serve from them in January of 2001 and signed "emergency power purchases." The CPUC had allegedly "moved closer to adopting the bond charges that will be collected from utility bills," so that bond sales could begin, according to an October 29 Reuters article.

California's deregulation law, adopted in 1996, blocked the utilities from passing high wholesale power costs to their customers for obvious reasons: the monopolies had been bailed out with $28 billion in ratepayer "Competition Transition Charge" fees just to get them OUT of the power business and become "neutral wires companies."

Bankruptcy was then used to push their way back into that business. As PG&E collected $7 billion in these funds from their customers from 1998 to 2001 and transferred the money to an unregulated affiliate company based in Bethesda, Maryland to undertake the greatest power plant shopping spree in history, their CEO back in San Francisco declared bankruptcy while complaining that their inability to reenter the market and buy power again was the problem! Just let us take over again, the saying goes, and everything will be alright. With no sense of irony or shame PG&E lobbied the legislature and Governor successfully that they must be allowed to resume their pre-deregulation role of power buyer despite the fact they had been paid $28 billion - now add $11 billion to that - just to get out of that role, the centerpiece of their monopoly.

Southern California Edison avoided bankruptcy by accepting a CPUC bailout plan of very questionable legal standing in the courts after it pursued a similar political strategy. Now communities seeking escape from Edison, PG&E and Sempra face the CPUC. Mayors, city councils and county boards of supervisors throughout California are expected to ask that no contracts be signed that will erect new Exit Fees beyond July 2003, when cities will be allowed to leave their monopolies. They will ask that the Governor and CPUC not implement a restoration of the very monopolies that California has paid billions to get rid of. Their message: that the empty rhetoric of "undoing deregulation" is nothing but a second great betrayal of California residents and businesses because it will prevent them from getting out for no reason but to restore the very companies that have already been paid to leave.

PG&E said its initial purchases will be small because Department of Water Resources, which has bought power for the whole state since early 2001, signed up for $40 billion of long-term supplies covering more than 90 percent of the sixth largest economy's electricity needs. Each contract that is approved will create new "Exit Fees," not to the state but the private monopolies, for communities that want to escape them for alternative providers.

By signing the new law allowing the PUC to guarantee the monopolies' contracts, the Governor is pursuing contradictory policies that will, strangely enough, set monopolies up in competition with their customers. Rather than remaining the "neutral wires companies" they were bailed out in 1996 to become, the monopolies will re-enter, post-bailout and post liquidation, the power business as monopolies, run to the head of the line of cities seeking contracts with other power companies, to buy up all the power, which they will then bring to the CPUC to guarantee so that the cities in line that do manage to find any remaining suppliers will be punished with new Exit Fees to pay the monopoly again.

In its "advice letter" to the CPUC, Pacific Gas & Electric disclosed it contacted 151 potential bidders for power deals, got interest from 57, and 20 suppliers submitted bids totaling 6,764 megawatts, or power for more than 6.5 million homes.

PG&E developed a short list of contracts that it said "provide a substantial benefit to ratepayers and a significant hedge against adverse conditions," this being the criterion under which the CPUC could guarantee them (make consumers pay for them no matter what) under a new law signed by Governor Davis on the same day he signed Local Power's Community Choice law ( September 24), which would allow municipalities and regions to break away from PG&E and the state's contracts to find their own power providers, run their own energy efficiency, solar and other local energy programs.

The CPUC appears to be on a fast track. A final confidential list of PG&E's suppliers, costs and total megawatts was sent to the CPUC for approval under a "new fast-track review system," according to Reuters. The contract prices may be adjusted to reflect market conditions before they are signed. If they are approved by the CPUC, their customers everywhere will be locked into them without their knowledge, damaging their future ability to get out. This is a scandal and communities everywhere should raise Cain about it now before the contracts are signed. Supporters are expected to ask the Governor and CPUC not to guarantee the contracts.

PG&E noted in its letter to the commission that until it regains an investment-grade credit rating and can take over each contract, the water agency will pay for the electricity and collect the costs from monthly utility bills. Clearly PG&E will use these contracts to improve its solvency and credit rating based on ratepayer-guaranteed contracts.

Local Power will strongly oppose these efforts, and encourages cities and counties throughout California seeking to break away from PG&E, Edison and Sempra under the Community Choice law to demand that the CPUC not guarantee any monopoly power contracts that will create new Exit Fees for Community Choice aggregators.

------------------------------------------------------------- Paul Fenn, who authored the 2002 California Community Choice Law, AB117 (Migden-SF), the original 1997 Massachusetts Community Choice Law, and San Francisco's voter-approved 2001 Solar Bond Authority, Proposition H (Ammiano), can be reached at

Copyright 2002 by Local Power.