Utilities department to sue PG&E Utilities department to sue PG&E (April 13, 2001)

Bay Area municipal utilities banding together

by Marv Snow

The city of Palo Alto will join other Bay Area communities in filing suit against PG&E -- which filed for bankruptcy protection last week -- in an effort to force the company to honor its contracts with other municipal utility agencies.

"We are going to be interveners and look at ways of becoming part of the bankruptcy filing," Palo Alto Utilities Director John Ulrich said.

Asked if he expected PG&E to ask the federal bankruptcy court to cancel all its contracts with Western Area Power Administration, which supplies smaller agencies -- such as Palo Alto -- with gas and electricity, Ulrich said: "I'm not sure I expect it. That's a contingency avenue that we would look at."

What impact will the bankruptcy have on Palo Alto's residential rates?

"Anything that is unfavorable to the contract is between PG&E and the Western Area Power Administration," Ulrich said. "If it is negative in any way it will impact Western's customers, including Palo Alto.

"I think Western, as well as us, feel we have a case on the relationship of our contract with PG&E. Of course these things are all up to the discretion of the bankruptcy court. That's why we retained legal counsel to represent us"

Asked if their attorney, Larry Engel, feels the city could prevail in a suit or a hard road is expected ahead, Ulrich said, "Probably all of those. As an attorney, his role is to advise us on opportunities and risks to help us decide upon the appropriate course of action."

With PG&E's bankruptcy filing and the possible loss of Western's contracts, it's possible the city could face $125 million in charges as part of the $1.5 billion Western would be forced to cover. Ulrich, however, couldn't comment on the likelihood of that occurrence.

"I wouldn't characterize it as more or less likely," Ulrich said. "It's still the same risk that we had before. That outcome would come if we had an unfavorable result of these cases."

Ulrich could not say how city rates or utility cash reserves would be affected by a $125 million charge. "There are a number of factors," he said. "It could be a little premature. That's why we came up with a dollar amount and how that would translate to rates.

"It's clear they (rates) would go up significantly, but by how much, I don't know.

"The one strength that we have is that we don't have any threat with our contract with Western, the portion that is hydro-generation," he said.

One of the concerns with hydro-generation is the amount of water in the Sierra Nevada snow pack. Recent storms have dumped more snow at higher elevations, but other states that also supply hydro-generation have lower snow packs.

"I still think it very doubtful that the Pacific Northwest is going to have a favorable hydro year," Ulrich said. "A significant amount of power comes from Pacific Northwest, so we will have rolling blackouts if we don't get enough power from the Pacific Northwest."

Ulrich said he has been meeting with other local municipal agencies that "have interests in improving reliability in the Bay Area: places like Alameda, Santa Clara, San Francisco, and several others.

"We have agreed to form a Bay Area authority group and we're putting together a Memorandum of Understanding on how we would work together," he said. "It would primarily be a group with the same focus on improving reliability with the object of actually doing something in coming up with projects that we all believe are important to reliability in our communities.

"Then we would work in concert to see that those were done. That could be with a state agency that would take over the transmission lines, if that comes to pass, or something we do ourselves, or we could go out and get support from others that would be interested.

E-mail Marv Snow at msnow@paweekly.com