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Several California Supreme Court justices questioned the private, closed-door nature of a rate-freeze agreement between state regulators and Southern California Edison Co. during oral arguments Tuesday. Attorneys for the California Public Utilities Commission and Edison explained that a 2001 agreement, which froze retail electricity rates for up to two years, was the best method of settling litigation between the two parties in the midst of the state’s energy crisis and the utility’s risk of bankruptcy. “This was not an ideal situation,” said CPUC attorney Gary Cohen, in defense of the agreement. But justices repeatedly questioned Cohen and other attorneys about how much discretion the CPUC has to privately forge such deals, given state open meeting and public notice laws. Justice Joyce Kennard was quick to ask both Cohen and Edison attorney Ronald Olson whether the deal violated a provision of the Bagley-Keene Act, which requires any CPUC meeting at which rates are changed to be open and public. In their respective arguments, Cohen and Olson maintained that since the deal did not actually change retail electricity rates, but merely preserved the existing rates, the agreement did not trigger the public notification procedures. “Rates being paid by every single customer did not change by one penny,” said Olson, a partner at Los Angeles’ Munger, Tolles & Olson. Moreover, said Olson, the Bagley-Keene Act permits state agencies to hold closed meetings with counsel to discuss litigation when doing so in public might compromise the agency’s position. Justice Kathryn Mickle Werdegar suggested that the provision’s text might not go so far as to allow the CPUC to settle litigation. But Olson replied that that right was implied. “It implies the right to not only discuss, but to settle it,” said Olson. The case, Southern California Edison v. Lynch, S110662, is part of the fallout from the state’s 1996 attempt to deregulate its energy market and the ensuing energy crisis. Pacific Gas & Electric Co. has been under Chapter 11 bankruptcy court protection since April 2001. The California Supreme Court’s decision on the Edison case could have an impact on the two proposed reorganization plans for PG&E, which contain some similar elements to the Edison agreement. The CPUC and Edison entered into their rate-freeze agreement as a way to resolve litigation between the two entities. Edison sued the CPUC in federal court in November 2000, alleging that under federal law, the CPUC could not prevent the utility from recovering its wholesale power procurement costs through retail rates. The resulting settlement extended an existing rate freeze, which was set to expire no later than March 31, 2002, under the state’s energy deregulation law. And it entitled Edison to recover $3.6 billion in procurement-related debts. The Utility Reform Network, a San Francisco-based nonprofit, officially intervened in the case, objecting to what it labels a “back-room deal” and a bailout. In September, the 9th U.S. Circuit Court of Appeals ruled that the deal appeared to violate the state’s energy deregulation law as well as open meeting laws. Rather than issue a final determination, however, the 9th Circuit requested that the California Supreme Court, as the ultimate authority on state law issues, consider the case. Michael Strumwasser, a Santa Monica, Calif., attorney representing TURN at Tuesday’s oral arguments, said the settlement was in fact a rate change since the CPUC was under an obligation to change Edison’s rates after March 31, 2002. “It obviously freezes a rate that has to by law go down,” said Strumwasser. In response to a query by Chief Justice Ronald George about the CPUC’s authority to settle litigation privately, Strumwasser said there was a difference between the commission’s ability to settle a slip-and-fall that occurred in its office lobby and a case involving rate changes. “Does this mean they have to litigate it to the death?” asked Justice Werdegar. “They can’t settle anything that requires them to alter a rate or tariff,” said Strumwasser. A decision is expected within 90 days. Justice Ming Chin, recused for undisclosed reasons, was replaced by 6th District Court of Appeal Justice Conrad Rushing.

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