PG&E Asks Federal Court To Affirm Company's Cost Recovery Rights Under Federal Law


San Francisco – Pacific Gas and Electric Company today announced it has filed in federal district court in San Francisco, asking the court to declare that the federally-approved wholesale power costs the utility has incurred to serve its customers are recoverable in retail rates.

Pacific Gas and Electric Company continues to work with the California Public Utilities Commission (CPUC), the Federal Energy Regulatory Commission (FERC), and other policy makers to develop solutions to the crisis in wholesale electricity prices. While a number of important steps forward have been made in the last few weeks, given the gravity of the current financial situation, this federal court action is needed to protect the company's legal rights.

"The CPUC, federal regulators and other public officials have all acknowledged that the current wholesale power market is broken and not capable of producing competitive wholesale energy prices, said Roger Peters, senior vice president and general counsel of Pacific Gas and Electric Company. "However, there has not yet been any concrete action by regulators to provide for recovery of the costs we have incurred to purchase the power our customers must have, either through refunds from power generators who charged unfair prices, or through retail rates. These costs are continuing to grow. This legal action is intended to confirm our legal rights before the courts, protecting our financial viability so that we can continue to provide the utility services on which our customers rely."

The action states that the wholesale power costs which the utility has incurred are included in filed rates which FERC has authorized and approved, and that under the United States Constitution and numerous federal and state court decisions, such costs cannot be disallowed by state regulators. As recently as this past summer in a report to Governor Gray Davis, the CPUC and the Electricity Oversight Board agreed that prudent wholesale power costs approved by FERC and included in federal filed rates must be passed through by the CPUC in retail rates.

Moreover, the filing notes that a significant amount of the more than $3 billion in Pacific Gas and Electric Company's under collected power costs is for electricity which state law mandates the California Independent System Operator purchase and pass on to the utility in order to maintain electric system reliability, literally "to keep the lights on."

"We were told to sell our power plants, ordered to buy all our power to serve our customers from the Power Exchange, ordered to accept all costs from the Independent System Operator, and ordered to allow any customer to switch back and forth between utilities and other energy service providers. We do not make any 'mark-up' or profit on the cost of wholesale power. In fact, we have taken every step the state would allow to try to keep power costs down," said Peters. "It may seem attractive, to some, to say that these costs now should not be included in customer rates, but it is a direct violation of law."

Although it has not obtained regulatory action confirming its right to recover its power costs, Pacific Gas and Electric Company is working collaboratively with regulators, policy makers and its customers to find solutions to address the entire electricity price crisis in California. The company has offered the following solutions to address the critical energy crisis facing the state: Increase supply, moderate demand, repair the broken wholesale market, and give our customers stable, reasonable rates:

  • The company is aggressively asking the Federal Energy Regulatory Commission to provide regulatory relief from the unjust and unreasonable power prices charged by the independent power generators, including price caps for future sales, as well as refunds of any unreasonable prices.

  • The company has advocated that the California Independent System Operator (CAISO) adopt price caps and market restructuring mechanisms to try to repair - at least on a temporary basis - the broken wholesale power markets in California.

  • The company used the limited authority granted by the California Public Utilities Commission to "hedge" against higher prices, and has moved aggressively to lock in the lowest prices available for future electricity needs through the use of bilateral contracts with power generators.

  • The company worked with the CAISO to survey its substations to identify which ones could accommodate small generation plants that could be used in times of very high demand. This is helping the CAISO to obtain proposals form power generators to site these small plants.

  • The company has pledged to protect its customers from the kind of price spikes seen in San Diego this summer. The company will present a rate stabilization plan in November, to take effect at the end of its temporary rate freeze, to allow collection of unrecovered electricity costs over time while also protecting its customers from price spikes.


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