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Feb 21, 2002

CONTACT: Doug Heller - 310-392-0522 x309

PUC to Ratepayers: We Quit

Agreement Allows Governor Davis-controlled Agency to Set Rates Without Challenge
Santa Monica, CA -- The California Public Utilities Commission (PUC) today entered into an irrevocable "rate agreement" with the California Department of Water Resources (DWR) that would hand electricity rate regulation of state purchased power to the DWR. This action removes the public oversight of energy costs that consumer advocates argue is necessary to ensure that consumer electricity prices are fair. As a result of the PUC's move, the DWR has been granted unprecedented powers, particularly to increase rates or to continue unnecessarily high prices without review. The agreement, which has been pushed by Governor Davis, was initially opposed by PUC president Loretta Lynch, and the Commission refused to pass a version of it last summer. Nothing in state law requires the PUC to enter into such an agreement. The Foundation for Taxpayer and Consumer Rights (FTCR) is considering an appeal of the decision.

"The PUC told ratepayers, 'We quit,'" said Doug Heller, a consumer advocate with the FTCR. "In bowing to Governor Davis, the PUC has shirked its Constitutional obligations to be the independent regulator of consumer electricity rates. As a result, Governor Davis has hidden electricity rate oversight behind an iron curtain of unaccountability."

Since January of last year, the DWR has spent approximately $11 billion in taxpayer money for power purchases, and the agency has committed tens of billions of ratepayer dollars for future purchases, at rates that far exceed reasonable long-range electricity prices. The "rate agreement" places payment to energy companies for high-priced power contracts as the first priority of future rates, according to a "summary of terms" issued by the DWR Wednesday. The agreement places repayment of the General Fund far down on the priority list, meaning that, if bond sales are insufficient to repay the General fund, the Treasury may never be repaid in full.

The agreement also eviscerates the opportunity to renegotiate the excessively priced power contracts because it takes away the incentive for power companies to reach a deal. Prior to this agreement, there was no assurance that power company contracts would be paid immediately by ratepayers, thus creating an incentive for power companies to consider offering more reasonable contracts.

Consumer advocates are concerned that, with the new authority provided under the agreement, Governor Davis will use money from the bond sale to temporarily lower electricity rates in advance of the November general election. Those decreases would have to be repaid with interest in the future and this use of bond financing could jeopardize full repayment of the Treasury.

"After the lessons of the California energy crisis and Enron, it is foolish to be removing accountability from our energy system and handing Governor Davis a ratepayer-backed credit card with no strings attached," said Heller.

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