Tuesday, September 24, 2002
Ninth Circuit Questions PUC Settlement With Edison, Asks State Supreme Court to Provide Guidance
By a MetNews Staff Writer
The California Public Utilities Commission may have exceeded its authority by entering into a settlement agreement that will allow financially troubled Southern California Edison Company to realize billions of dollars in the form of higher rates, the Ninth U.S. Circuit Court of Appeals said yesterday.
While rejecting procedural objections to the settlement by several parties, the court said The Utility Reform Network appeared to be correct in arguing that the settlement violated both open-government and regulatory statutes. The panel declined to make a final ruling to that effect, however, certifying the questions to the state Supreme Court instead.
Edison sued the PUC last year, alleging that federal law required the commission to allow Edison to recover “stranded” costs that it had incurred for power but couldn’t pass on to customers when its rates were frozen during the transition to market-driven rates under the state’s 1996 deregulation law.
The PUC and Edison agreed to a settlement that would allow Edison to use rate hikes, as well as shareholder funds, to recover about $3.3 billion of the $6.3 billion it was seeking. The PUC had previously ruled that any such use of ratepayer funds would be illegal, a holding left standing by the state appellate courts.
The settlement was challenged by a number of proposed intervenors, including TURN, whose motion to enter the proceedings was granted by U.S. District Judge Ronald S.W. Lew of the Central District of California.
Edison said the settlement would allow it to avoid joining Pacific Gas & Electric Co. in bankruptcy court. TURN characterized the deal as a state “bailout” of financially troubled Edison that would keep rates artificially high.
Judge Sidney Thomas, writing for the Ninth Circuit, rejected TURN’s contention that federal jurisdiction was precluded by the Rooker-Feldman doctrine generally barring interference by lower federal courts in state proceedings.
The doctrine does not apply to administrative agency proceedings, he said. And another abstention rule, the Burford doctrine, which may apply to administrative proceedings, does not apply here because the state agreed to be bound by the federal court’s judgment, Thomas concluded.
“There is, however, a serious question of whether the agreement between the Commission and SoCal Edison violated state law, both in substance and in the procedure by which the Commission agreed to it,” the judge went on to say.
“State officials,” he explained, “cannot enter into a federally-sanctioned consent decree beyond their authority under state law.”
The PUC, he wrote, appears to have violated a provision in the deregulation law, which required it to keep rates at 1996 levels, with a 10 percent reduction for residential and small-commercial customers, “and to maintain those rates until the utility has fully recovered its stranded costs or until March 31, 2002, whichever comes first.”
The settlement, Thomas noted, maintains the rate freeze beyond the stated expiration date and also appears to violate the law by allowing future collections to be applied to past procurement costs. It also allows Edison to collect a “surcharge” that appears to violate a provision protecting consumers from price increases during the transition period, he wrote.
Legislation designed to undue some of the unintended consequences of deregulation, adopted during last year’s special session, did not repeal the provisions cited by TURN, Thomas emphasized.
There was also “a serious question,” the judge wrote, as to whether the commission violated the Bagley-Keene Open Meeting Act, as well as a Public Utilities Code section requiring open hearings on rate increases and the state constitutional provision that bars administrative agencies from refusing to enforce state laws on constitutional grounds, in the absence of a judicial finding of unconstitutionality.
The judge rejected the contention that the settlement fell within the Bagley-Keene Act’s exemption for legal advice. The exception does not allow an agency “to take action, and certainly not to issue regulatory orders” in closed session, he said.
Nor did he accept the proposition that the code section is inapplicable to an agreement “not to reduce rates.” The agreement will, he said, “result in huge changes in the rates SoCal Edison customers will pay.”
Thomas was joined by Judge Johnnie Johnnie Rawlinson and Senior Judge James Browning.
The appeal was argued by Michael Strumwasser of Santa Monica’s Strumwasser & Woocher for TURN, Henry Weissman of Munger, Tolles & Olson LLP for Edison, and General Counsel Gary M. Cohen for the PUC.
The case is Southern California Edison Company v. Lynch, 01-56879.
Copyright 2002, Metropolitan News Company