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High Voltage: Affiliate Rules Shock Utility Markets

Fortnightly Magazine - January 15 1999

Econome was not swayed by the company's arguments and proposed a $336,000 fine. The commission rejected that fine, and voted 3-2 to levy a $1.68 million penalty on PG&E Corp. shareholders.

The fine prompted an immediate response from PG&E. It promised to appeal. PG&E, a company with $18 billion in annual revenues, apparently plans to make legal precedent, because a court fight could easily cost more than the fine, especially if the case rises up the judicial ladder.

According to Greg Pruett, PG&E spokesman, a state appellate court would likely be the first stop for review of the CPUC's affiliate rules, which were modified slightly in August in Decision 98-08-035. (See "News Digest," Public Utilities Fortnightly, Nov. 1, 1998, p. 21).

Pruett says the company hopes the court will "see this is really an action by the public utilities commission that is beyond the scope of its jurisdiction. If the worst-case scenario happens and they do not see that, we're prepared to go as far as we have to go, including all the way to the United States Supreme Court.

"In this instance, we just really think the commission is wrong," he adds. "It has erred in assigning itself powers which it does not possess under the state constitution."

Pruett says the commission could have levied a fine of "several hundred thousand dollars," which would have been within its jurisdiction. The matter becomes a jurisdictional issue once it reaches a certain threshold of dollars fined, the company believes. "In our mind, that is correct," Pruett says of that position.

The utility has had a five-member affiliate rules compliance department since PG&E Corp. was created as a holding company Jan. 1, 1997, but the department did not review the "High Voltage" ad.

"That's one of the things that occurred; that was an error that we readily acknowledged right up front," Pruett says. "They should have reviewed these ads. They did not. Had they reviewed them, we would have recognized immediately that the type size in the disclaimer should have been larger and the placement of the disclaimer should have been a little more clear.

"It truly was an innocent oversight that led to this whole thing."


Crying Out Loud

PG&E Corp.'s competitors and market observers say innocent or not, the fine was deserved - and could have been higher.

Craig G. Goodman, president of the National Energy Marketers Association, which has proposed a model set of affiliate rules (see sidebar), says the rules have to be effective and enforced so that violation doesn't become standard operating procedure.

"If a company with a lot of resources can violate the rules with impunity or with delayed justice or ineffective penalty, then there's a tendency to make the violation of the rules just a cost of doing business," Goodman says. "And that's one thing that cannot happen if we're going to have an effective marketplace."

"I think [PG&E] ought to be fined 10 times that, to tell you the truth," says Frederick M. Bloom, president of Commonwealth Energy Corp., a PG&E Energy Services competitor in