The California Public Utilities Commission is something of a black box to most Californians.  So, when I saw that they might be charging something of a mysterious tax.  But what really bothered me when I actually read David Cay Johnston’s article on the “Imaginary tax” on tax.com wasn’t that the PUC was taking in some tax.  Nope, this “tax” is actually going straight to the corporate coffers of the owners of the Santa Fe Pacific Pipeline (SFPP), Kinder Morgan.

Simon is a securities lawyer whom Gov. Arnold Schwarzenegger (R) appointed to the California Public Utilities Commission (PUC). Simon wants to treat partnerships, which are exempt from corporate income taxes, as if they paid those taxes. The result would be to force customers of every rate-regulated monopoly that organizes itself as a partnership to shell out money to cover a corporate income tax that simply is not applicable.

There is a term to describe this: corporate socialism.

Even if the ultimate cost works out to only a quarter per Californian per year, it would mean an extra $11.1 million in profit to the Santa Fe Pacific Pipeline (SFPP). If the costs are higher, the extra profits would scale up accordingly. (tax.com)

It’s kind of a weird story, and you should probably read the full version. But long story short, SFPP was used to getting a fee to cover the corporate tax. Thing is, they weren’t actually paying a corporate tax.  A PUC Administrative Law Judge ruled against the fee, but the PUC is looking to continue the fee notwithstanding the ALJ’s ruling.

Simon’s alternative decision acknowledges a previous commission decision that “an allowance for tax expense is only a just and reasonable charge when there is likely to be an actual tax expense by the utility.”

But Simon wants to go much further. He wants to impose on consumers the corporate income tax even when the utility is organized as a partnership, which by law is exempt from the corporate income tax. (tax.com)

For years now, the PUC has been something of a backwater. It was originally intended to protect consumers, but has become so captured by the industries that it was supposed to be regulating that it has become meaningless.

Gov-elect Brown needs to take a thorough review of all of these commissions to make sure they are both serving their purposes, and to ensure that they haven’t been totally captured in a way that is hostile to their initial intent.

The “infamous case” cited by Robert Cruickshank is actually much worse than reported in Thursday’s Chronicle.  Under Pete Wilson’s PUC, PG&E under-spent (pocketed) multimillion dollar maintenance allowances included in rates, including its tree-trimming budget, not once but in three successive triennial rate case cycles.  The unspent ratepayer funds went right to the corporation’s bottom line.

When I was appointed to the PUC by Governor Gray Davis in 1999, the commission was about to vote on a new PG&E rate case.  The administrative law judge who heard the case, disgusted by the company’s performance, drafted a decision reducing the rate request by hundreds of millions of dollars.  The expectation of workers at the utility was that PG&E would respond with hundreds of layoffs rather than accept a reduction in profits.  

I offered an alternate decision that required the company to actually spend the money on tree-trimming (necessary to minimize service interruptions during storms and prevent wildfires), or return it to ratepayers.  My proposal passed 3-2, and over the next 3 years PG&E finally dealt with a decade’s accumulation of untrimmed trees.

The implementation of other reforms included in that decision, such as requiring the utility to track the condition of its electrical distribution system, meet its service appointment deadlines or pay penalties directly to the affected customers, and inspect homes for carbon monoxide was derailed by PG&E’s self-serving bankruptcy filing at the height of the 2000-2001 Energy Crisis.  After Gov. Davis caved in to corporate pressure and appointed anti-consumer commissioners (such as Susan Kennedy, currently Gov. Schwarzenegger’s Chief of Staff), any chance of serious regulatory oversight by the PUC disappeared.

This is another example of what is at stake in this year’s elections.  The new governor will be able immediately to appoint a majority to the PUC.  Whether this powerful commission will answer to consumers or to the industry it is supposed to regulate will turn on the outcome of the vote on November 2.

Utility Workers Union leader Carl Wood is the Democratic candidate in the 65th Assembly District (Riverside and San Bernardino Counties).

See also Paul Hogarth’s diary on this subject.

Rachelle Chong has been a controversial figure in California’s telecom world for a while now. She was appointed by Gov. Schwarzenegger to replace Susan Kennedy when Kennedy was named CoS. Earlier this week, Sen. Steinberg declined to schedule a hearing before the Rules Committee, effectively blocking her confirmation.  The reason for the denial? Simple, she was an instrument of industry, even comparatively in a body that is always faced with charges of industry capture

The Utility Reform Network, or TURN, a San Francisco-based consumer group, has opposed Chong for taking the lead role for what they described as industry-friendly regulations deregulation, including rules to boost basic rates by $3.25 last January, $3.25 next month and a removal of the rate cap in January 2011. Telecommunications companies have supported her. (CapWeekly)

Not only did she work to get rates increased, but this little story is rather amazing in not only its audacity, but also its ramifications.

Chong drew fire at her first confirmation hearing in 2006 for inserting last-minute language into a complex, 282-page proposal dealing with telephone-company deregulation.

*** *** ***

“At the last minute, and at the last day, this particular paragraph was inserted that let AT&T out from under [the regulations]. The way this was slipped into the decision was not acceptable,” said Commissioner Geoffrey Brown, who later co-authored an impassioned, scathing dissent. He voted in favor, he said, “but I didn’t know what was in there. Nobody knew what was there.

Chong, and her staff, defended the language, but it just isn’t believable.  Despite the telecoms best efforts to get Chong approved, and boy did they try, it looks like she won’t be remaining on the PUC.

Also, Chong isn’t the only nominee up for confirmation, as Board President Michael Peevey’s fate is also up in the air.  Keep an eye out on that nomination.  The early money is on his confirmation. Considering Chong’s rejection, I kind of doubt that the Senate will come in with both guns blazing. It just doesn’t play to type.

(Good question – promoted by Julia Rosen)

On Wednesday night the Newsom Administration went public with their pressure on Susan Leal to resign from the PUC.

San Francisco Public Utilities Commission chief Susan Leal has been asked to resign, the first major department head to be targeted for removal by Mayor Gavin Newsom, knowledgeable City Hall sources said… Leal received a telephone call Friday evening from Newsom’s chief of staff saying her services won’t be needed in his second term.

This has left a number of people asking “Why?”, and in response to the Mayor’s decision, I sent the following Letter to the Editor of the Chronicle yesterday afternoon.

To the Editor:

I am stunned to learn of Mayor Newsom’s request to the PUC General Manager Susan Leal for her resignation (“Newsom urges Leal to resign as head of S.F. PUC,” 12/6/07).

More below the fold.

To the Editor:

I am stunned to learn of Mayor Newsom’s request to the PUC General Manager Susan Leal for her resignation (“Newsom urges Leal to resign as head of S.F. PUC,” 12/6/07).

For years, the PUC languished under poor leadership and mismanagement prior to Leal’s arrival and is now in the process of implementing a $6 billion overhaul of our water and sewer systems, in addition to its ongoing responsibility for delivery of water to 2.5 million people, sewage conveyance and treatment for all San Franciscans, power delivery to MUNI and all City buildings, and operation of one of the greenest water systems in the world.  Leal has brought with her a competent, determined leadership team that has saved the City millions, implemented strategies for greener, cleaner power, and given direction back to an organization that badly needed it.

That Gavin Newsom has decided Leal’s “fit” in some circle of friends is more important than the continued success of this invaluable organization speaks volumes to what a second Newsom term holds for San Francisco.  During the Mayor’s re-election campaign, I at least felt that he couldn’t set the City backward, but now I am not so certain.  How unfortunate for us all.

Luke H. Klipp, President

San Francisco Young Democrats

I appreciate anyone’s thoughts here.