PG&E Bankruptcy Settlement Update

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, Dec. 12, 2003 Share this on FacebookTweet thisEmail this to a friend

The California Manufacturers & Technology Association supports Pacific Gas & Electric's emergence from bankruptcy in a manner that balances the interests of PG&E shareholders and customers. In particular, CMTA supports a plan that establishes a reasonable amount of costs to be recovered from customers and also provides for immediate and significant rate decreases for industrial customers, the rate class that bore the brunt of the 2001 rate increases caused by the energy crisis.

Since 1997, rates for PG&E’s largest customers (Schedule E-20T) have more than doubled, increasing from 4.7 cents to 10.03 cents per kilowatt-hour – a 113 percent increase. In contrast, residential rates have increased by only 9 percent. Energy costs are often cited by manufacturers as a major problem in California and have contributed to the loss of more than 300,000 manufacturing jobs since December 2000. Continuation of rates for large electric customers at these high levels – or providing only modest rate decreases – would threaten the recovery of manufacturing in PG&E’s service territory, reducing that sector's contribution to paying PG&E debts, reducing tax revenues to the state and local governments, and limiting high wage manufacturing employment.

The bankruptcy settlement, by its terms, does not dictate how any rate reduction or cost reallocation decision would be implemented. Further proceedings before the CPUC will address this issue. However, the choices being made in the bankruptcy settlement will dictate how steep any rate decreases could be and the overall amount of costs which customers must provide to establish PG&E as a creditworthy entity and over what period of time.

PG&E’s bankruptcy settlement proposal before the CPUC requires customers to contribute toward the payment of PG&E’s back debt through creation of a capitalized “regulatory asset.” Other proposals pending before the CPUC differ in the size of the regulatory asset, as well as in other ways that present trade-offs which affect the level of rate reduction for industrial customers.

CMTA believes that it is in our best interest to downsize the overall cost of the settlement under the PG&E proposal and to maximize the level of rate reduction, on the order of 25 percent, to be immediately flowed through to industrial customers. This rate reduction for industrial customers should reflect the fact that they were the ones who bore the brunt of past increases. To achieve the largest possible rate reduction, CMTA generally supports a longer period for financing some of the bankruptcy costs. In addition, we believe that the cost of financing the back debt could be reduced by use of a "dedicated rate component" (DRC), the same technique for borrowing used to fund the 10 percent rate reduction for small customers at the beginning of restructuring in 1996. A DRC approach passed the Senate last year in SR 30 (Debra Bowen, D-Marina del Rey).

The CPUC decision on the bankruptcy settlement is scheduled for December 18. If there is no CPUC decision by December 31, the issue goes back to the bankruptcy court for a decision by Judge Montali. It is unclear whether any of the proposals on the table has the three votes necessary to prevail. In order to achieve a final decision on this matter before month end, there will need to be more work and further compromises which can be supported by three Commissioners. CMTA urges the Commissioners to adopt a solution that carefully considers the level of costs to be recovered from customers and provides the greatest opportunity for an immediate and significant rate decrease for industrial customers.
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