Interesting assist from Jones?
-----Original Message-----
From: Ken Smith [mailto:ken@kdscommunications.com]
Sent: Wednesday, September 19, 2001 2:04 PM
To: Sharma, Ban; Leboe, David; Eric Letke; Thome, Jennifer; Bev Hansen; Hedy Govenar; Buster, Miyung; Guerrero, Janel; Robert Frank; Mike Day; Lawner, Leslie; Kingerski, Harry; Karen Denne; Kean, Steven J.; Alan Comnes; Susan J Mara; Kaufman, Paul; Jeff Dasovich; Steffes, James D.; Rick Shapiro; Scott Govenar
Subject: Secretary of State Bill Jones Calls Transfer of Rate Fixing Authority From the PUC to DWR Unconstitutional


A press release and comments from California Secretary of State Bill Jones regarding the PUC's ratemaking hearing are included below.  These were issued at a Sacramento press conference this morning, and were sent to me by his campaign staff.
Ken
----- Original Message ----- 
From: Darrel Ng <mailto:darrel@billjones.org> 
To: ken@kdscommunications.com <mailto:ken@kdscommunications.com> 
Sent: Wednesday, September 19, 2001 11:48 AM
Subject: Secretary of State Bill Jones Calls Transfer of Rate Fixing Authority From the PUC to DWR Unconstitutional


BJC:27

FOR IMMEDIATE RELEASE                                            CONTACT:    Beth Miller

Wednesday, September 19, 2001                                                                Beth Pendexter

                                                                                                                        Darrel Ng

916/349-2002

 

Secretary of State Bill Jones Calls Transfer of Rate Fixing Authority From the PUC to DWR Unconstitutional


Transfer Would Eliminate Public Accountability & Oversight Authority of Future Rate Increases


SACRAMENTO - Raising questions about the constitutionality of transferring rate-making authority from the Public Utilities Commission (PUC) to the Department of Water Resources (DWR), Secretary of State Bill Jones today expressed his outrage at the prospect of losing all public accountability and oversight of California's electricity rate-setting process.

            The PUC is expected to vote on Thursday, September 20, 2001, to accept a draft decision by Administrative Law Judge Pulsifer that would transfer its ratemaking authority to the DWR.  

"Do you really trust - or should anyone trust - Governor Davis setting rates without public oversight?" asked Jones.  "The Governor's record on energy has been abysmal.  He has turned a short-term supply problem into a long-term fiscal crisis.  It would be absolutely wrong and not in the state's best interest to give Gray Davis and the DWR a blank check," said Jones.        

AB1X specifies that DWR be entitled to recover the costs of its energy purchases after advising the PUC of the costs.  Most recently, DWR has informed the PUC that their purchases for energy through 2002 will reach $12.6 billion.  If the PUC accepts the draft decision, DWR will now be the state agency making the determination of whether its own purchase costs are "just and reasonable."

            "Pure and simple it's a rate scheme that the PUC must declare unconstitutional.  If the PUC refuses to do so, California risks facing a long period of legal turbulence and uncertainty as a result of the unlawful delegation of powers from the PUC to the DWR," said Jones. 



- MORE -

BJC:27:2

"As our state weathers this energy challenge and faces great economic uncertainty with a budget deficit looming in the future, never before has it been so important for the PUC to responsibly perform its vital oversight duties, acting in the best interest of Californians," said former Governor George Deukmejian, who joined Jones and past PUC Commissioner Stan Hulett today in criticizing the pending PUC action.

            As a former California Attorney General, Deukmejian also expressed strong concerns regarding the legality of the PUC's abdication of authority.

            "The PUC's power to review rate increases is a power expressly granted to it in our California Constitution.  The Legislature cannot simply delegate this power to another state agency by passing a simple statute.  This transfer of power can only legally occur if a constitutional amendment is passed and AB1X is not a constitutional amendment," said Deukmejian.

            Former PUC President and Commissioner Stan Hulett also raised serious questions regarding the shift of constitutional responsibilities from the PUC to the DWR.

"Even something as seemingly innocuous as relocating the PUC's headquarters from San Francisco to Sacramento would require a constitutional amendment, according to the opinion we received from former Attorney General John Van de Camp when that issues arose some years ago," Hulett said.  "A shift of responsibility of this magnitude would clearly and unambiguously require a constitutional amendment given the enormity of the proposal."

            Secretary Jones implored the PUC to suspend action on the draft decision until these extraordinary constitutional questions are addressed.

            "California is poised to take a disastrous leap into unconstitutional government.  For all our sakes, and for the future of our state, we must not allow that to happen," said Jones.

- 30 -

 

Remarks by Secretary of State Bill Jones Regarding the Unconstitutional Transfer of Rate Fixing Authority From the Public Utilities Commission 

to the Department of Water Resources

 

(As Prepared)

 

Good morning.  

 

Thank you for being here today.  . As you know, tomorrow the California Public Utilities Commission will be voting on an extremely important issue that will affect all Californians for years to come.   

 

The PUC will consider abdicating its ratemaking responsibilities to the Department of Water Resources based upon a draft decision by Administrative Law Judge Pulsifer.

 

I am here today because I have grave concerns that if the PUC adopts this decision, they will be violating a major provision of California's Constitution.  

 

As California searches for ways to deal with our continuing energy situation it is incumbent upon each of us to examine the ramifications - both short and long term - of every decision we make.  This past weekend the California Legislature chose not to bring legislation affecting the pending bankruptcy of Southern California Edison because many members of the legislature believed that the legislation was severely flawed.

 

 

Let's examine for a minute why this issue and vote will be taken tomorrow.  This decision rests wholly on the new rate scheme embodied in Assembly Bill 1X (AB1X.).  

 

Since January of this year, the DWR has purchased electrical power on behalf of cash and credit poor Southern California Edison (SCE), Pacific Gas and Electric (PG&E) and San Diego Gas and Electric (SDG&E).  AB1X granted this authority to DWR. 

                        

            AB1X specifies that DWR is entitled to recover the cost of these purchases, and that DWR is to advise the PUC of this amount.  DWR has recently estimated that it will require $12.6 billion to cover the costs of power purchased through 2002.

 

AB1X further stipulates that the PUC will approve rates, designed by DWR and paid by the consumers, to cover DWR's expenditures for its energy purchases. Under the law, as laid out in AB1X, DWR and not the PUC will make the determination as to whether its purchase costs of $12.6 billion are "just and reasonable" under the law.             

 

Pure and simple, it is a scheme that the PUC must declare unconstitutional. If the PUC refuses to do so, California risks facing a long period of legal turbulence and uncertainty as a result of the unlawful delegation of powers from the PUC to the Department of Water Resources.  

 

This is a dramatic and extremely troubling break from the current role of the PUC.  For decades, the PUC has aggressively performed the vital task of oversight, through public hearings, to ensure that rates charged California's electrical energy users are "just and reasonable."  Now, that indispensable oversight authority would be delegated to a bureaucratic state agency, the DWR, with no public oversight and no independent decision making authority.

 

Do you really trust - or should anyone trust - Governor Davis' setting rates without public oversight?  The Governor's record on energy has been abysmal and he has turned a short-term supply problem into a long-term fiscal crisis.  It would be absolutely wrong and not in the state's interest to give Gray Davis a blank checkbook.

 

DWR and Gray Davis would become the sole arbiter of whether the cost of their own energy purchases has been "just and reasonable." Through AB1X, the Legislature has diminished the PUC's role so greatly, that its function is to simply allocate shares of the $12.6 billion revenue requirement to the three utilities.

 

This is a classic case of the fox guarding the hen house - it must not happen.

 

The PUC must not vote to accept this illegal transfer of authority. The PUC must vigorously defend its role.  It must not allow the Legislature to abolish the crucial role it performs: reviewing the reasonableness of the overall purchase costs before they are passed along to ratepayers.

 

As I noted earlier, the reimbursement scheme set forth in AB1X is a violation of California's Constitution. The Legislature's attempt to strip public accountability for the reasonableness of rate increases from the PUC and give it to DWR is appalling.  Nowhere in AB1X is it specified what a reasonableness review conducted by DWR will now be. 

 

Will senior officials at DWR and Governor Davis gather at a conference table behind locked doors and declare their own power purchases reasonable? 

 

Will they hold public hearings and subject their expenditures of billions of dollars belonging to the people of California to the scrutiny of the people of California?

 

            Looking at their track record, the answer is no.

 

The PUC's power to review rate increases is not merely based on statute.  It is explicitly set out in the California Constitution. This is a very critical distinction. The Legislature cannot transfer or delegate this critical power by a simple statute. It can only be done by constitutional amendment. And AB1X is not a constitutional amendment. 

 

According to California Courts, the PUC "is not an ordinary administrative agency, but a constitutional body with broad legislative and judicial powers." Article XII, section 6, of the California Constitution states the general grant of authority for the PUC to fix rates.  

 

Section 6 provides:

 

"The commission may fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities subject to its jurisdiction."

 

Thus, "[t]he Constitution confers broad authority on the commission to regulate utilities, including the power to fix rates, establish rules, hold various types of hearings, award reparation, and establish its own procedures." This is basic California law, reaffirmed time after time by our courts.  

 

These constitutional powers are based firmly on the authority to make factual inquiry into the reasonableness of the rates to be fixed.  In one notable case, PG&E v. Railroad Comm., the federal court reviewed natural gas rates set by the Railroad Commission, predecessor to the PUC.  The court discussed the duties of the ratemaking body to make sure that the rates it fixes be "reasonable." 

 

Because the PUC has the authority to "fix rates," it therefore has a corollary duty to make sure that the rates it fixes are reasonable.  

 

This must mean that there is a constitutional duty and right to examine the costs underlying those rates.  AB1X cannot alter or eliminate that duty.  AB1X also cannot strip the core component of any reasonableness review: the close and open-minded examination of those facts being used to justify a rate increase.

 

The Legislature cannot deny the PUC these constitutional powers.  

 

By depriving the PUC the authority to examine underlying costs in the exercise of its duty to "fix rates," the Legislature has improperly sought to modify, curtail and abridge the constitutional powers of the PUC.  To that extent, AB1X is invalid and unconstitutional.

 

            In a startling break with California's past history, AB1X allows DWR to retain title to the energy it purchases and then "resell" it directly to consumers. The utilities then collect the energy costs from their retail customers and return to DWR the portion of the revenues DWR has said it must have as reimbursement.

 

            By any other name, this is a tax. It is an enormous sum of money being paid out by the people of California.

 

            According to our courts, the power to set taxes is a legislative function.  DWR is an agency within the executive branch of government. 

 

            The California Constitution specifies that the powers of one branch shall not be exercised by another branch. 

 

The following example highlights the impropriety of the Legislature's delegation of authority to DWR to determine the reasonableness of its own energy purchases.  

 

            The Legislature assesses California's highway and transportation needs and then sets the rate for the gasoline tax. Drivers purchasing gas in California pay the tax, on a cents per gallon basis, whenever they buy gas. The Legislature cannot delegate to CalTrans the authority both to determine its own highway construction budget and to set a gasoline tax rate calculated to fund that budget. 

 

This situation is identical to DWR. The Legislature has directed DWR to purchase power, as it needs, at prices it is willing to pay. The Legislature has further directed the PUC to authorize rates, without any review to determine their reasonableness, in order to reimburse DWR.

 

The PUC cannot legally - and must not under any circumstances -- abdicate its responsibilities to the people of California.    

 

This is a decision based on the unconstitutional scheme laid out in AB1X, and it's unconscionable for the PUC to vote away its own most precious function: providing accountability for just and reasonable rates for the people of California.

 

For these reasons, I cannot urge in stronger terms that the PUC take the following actions tomorrow on the draft decision:

 

1.      Suspend action on the draft decision until the extraordinary constitutional questions are resolved 

2.      Seek immediate resolution of these constitutional questions by initiating a lawsuit against the Legislature and the Governor 

3.      Adopt regulatory and statutory changes to ensure that public oversight and accountability for just and reasonable rates continues

 

            California is poised to take a disastrous leap into unconstitutional government.  For all of our sakes, and the future of our state, this must not be allowed to happen.

 

-# # #-