California Public Utilities Commission Endorses Electric Industry Restructuring Proposal

Strategic Insights -

The California Public Utilities Commission (PUC) issued a recommendation on December 20, 1995, endorsing a form of electric industry restructuring. The PUC's majority opinion echoed many policies promoted in an agreement between utilities and larger customers, including the California Manufacturers Association and the California Large Energy Consumers Association. However, the advocacy group TURN was disappointed with the announcement, citing concerns that the proposal fails to meet the group's guidelines for evaluating electric industry restructuring. TURN's executive director, Nettie Hoge, stated that the PUC's decision prioritizes utility shareholders over ratepayers, who will bear the costs of "stranded investments."

Key Takeaways:

  • The PUC's recommendation on electric industry restructuring prioritized rate stability over rate reductions, contradicting the original goal of lower rates for all customer classes.
  • The majority opinion requires residential ratepayers to shoulder more than their fair share of "stranded costs," with utilities and shareholders benefiting at their expense.
  • The proposal allows utilities to voluntarily divest a portion of their market share, but lacks sanctions or financial incentives to ensure compliance.
  • TURN's guidelines for evaluating electric industry restructuring proposals were not met, with the PUC's decision failing to ensure fair sharing of costs among ratepayers.
  • The advocacy group claims that the ratepayers were "rolled" by the PUC's decision, which favors utility shareholders and large commercial and industrial users at the expense of residential and small business ratepayers.

Statistics:

  • Electric rates in California are currently 50% above the national average.
  • The Federal Energy Regulatory Commission has ordered investor-owned utilities (IOUs) to open their transmission lines.
  • TURN has issued a set of guidelines for evaluating electric industry restructuring proposals, which include ensuring lower rates for residential and small business ratepayers.
  • 100% of "stranded investments" will be borne by ratepayers under the PUC's proposal, with no provisions for utility shareholders to share the costs.
  • The PUC's decision requires residential ratepayers to shoulder more than their fair share of "stranded costs."

Sources:

  • California Public Utilities Commission
  • Toward Utility Rate Normalization (TURN)
  • California Manufacturers Association
  • California Large Energy Consumers Association
  • Federal Energy Regulatory Commission