PG&E's Hydro Workout: Can This Deal Be Saved?

For the utility, wresting its assets from PUC control is the real point.
For the utility, wresting its assets from PUC control is the real point.
Fortnightly Magazine - February 15 2001
EES North America


For the utility, wresting its assets from PUC control is the real point.

Gas & Electric Co.'s 17-month-old proposal to divest its hydro assets via auction likely is dead, a casualty of California's ongoing energy market turmoil. Despite this reality, the utility's auction proposal remained active at the California Public Utilities Commission (PUC) as of press time in mid-January, even as the governor and state legislature held emergency meetings amid rolling blackouts.

In his Jan. 8 State of the State address, California Gov. Gray Davis proposed repeal of the state law permitting its three IOUs—PG&E, Southern California Edison Co. (Edison), and San Diego Gas & Electric Co. (SDG&E)—to sell their remaining generating facilities. "Instead," Davis said, "we must require them to hold on to those facilities and sell their power to California consumers."

Separately, within the state legislature, Assembly Speaker Pro Tem Fred Keeley (D-Santa Cruz/Monterey) has proposed legislation that floundered last year to buy generating assets and run them as part of a state authority. Gov. Davis and others also have floated the idea of a California public power authority to correct what he has described as the state's energy "mess."

"California's deregulation scheme is a colossal and dangerous failure," Davis said in his speech. "It has not lowered consumer prices. And it has not increased supply. In fact, it has resulted in skyrocketing prices, price gouging, and an unreliable supply of electricity—in short, an energy nightmare."

Sentiment for blocking the divestiture also is strong within the state commission.

PUC commissioner Carl Wood recently issued a statement bluntly expressing his feeling that divestiture must stop. "[D]ivestiture of utility-owned power plants is a core feature of this [deregulation] disaster," he says. "It is perhaps the single largest factor in bringing about the totally dysfunctional wholesale markets that we find ourselves in today. ... I am frankly in a state of disbelief that anyone would still be seriously considering authorizing the further divestiture of some of the very little remaining generation that is owned by the utilities in California."

Others at the PUC, and more broadly within the state, echo these sentiments.

"Several [speakers at recent PUC rate hearings] have said this is an insane situation," says Bruce Kaneshiro, PUC project manager for the environmental impact report on PG&E's auction proposal. "Why would you allow divestiture of even more plants to the very people who are gouging California-especially when these plants are infinitely more valuable because they're not dependent on gas?"

Adds Robert Kinosian, a senior analyst in the PUC's Office of Ratepayer Advocates, "I don't think there's any chance the commission is going to approve any more divestitures, so why are we having a proceeding talking about selling off the hydro plants? ... Our position ... is [the assets] should be retained by the regulated utility subject to regulation. They should not be sold at this time. They should not be transferred to the utility affiliate."

At Stake, Ownership and Oversight

PG&E's hydro facilities represent the largest private hydroelectric power system in the nation. Vast and diverse, they include 68 powerhouses,