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State regulators acted within the law when they inked a secret deal with Southern California Edison to hold electricity rates at above-normal levels, the California Supreme Court ruled Thursday. In a 29-page decision by Justice Kathryn Mickle Werdegar, the justices unanimously upheld the California Public Utilities Commission’s authority to set electricity rates, despite the state’s 1996 energy deregulation law. Six justices also found that agencies like the PUC are not bound by the state’s public notice and open meeting laws in situations where public disclosure could jeopardize settlement of pending litigation. Justice Marvin Baxter dissented in part, and warned that the majority’s view of open meeting laws “opens the door to a widespread danger of ‘government by lawsuit.’” The Supreme Court’s decision in Southern California Edison v. Peevey, 03 C.D.O.S. 7580, marks a major victory for the PUC and Edison and could spell the end of a legal challenge to an agreement that both sides claim was necessary to keep the utility out of bankruptcy. “The final arbiter has spoken,” PUC president Michael Peevey said during a news conference, calling the decision a “major day for California” and “a huge step towards restoring Edison to its financial health.” The case stems from the energy crisis that resulted in rolling blackouts throughout California in 2000 and 2001. Skyrocketing wholesale energy prices left Pacific Gas & Electric Co. bankrupt. Edison, the state’s second-largest energy utility, sued the PUC in federal court in 2000, alleging that the commission could not prevent it from raising retail electricity rates in order to recover its wholesale power procurement costs. The two entities settled the litigation in 2001 with an agreement preserving an existing retail rate freeze for two years past its expiration date. But according to The Utility Reform Network, the rate freeze deprived ratepayers of $3.3 billion in refunds. TURN intervened in the case, alleging the settlement was a “backroom deal” and that the 1996 energy deregulation law prevented the PUC from changing rates. The 9th U.S. Circuit Court of Appeals asked the state justices to rule on that part before it decided TURN’s appeal. In Thursday’s decision, the Supreme Court rejected TURN’s contention that the PUC exceeded its authority by freezing rates, finding that emergency legislation passed in 2001 put the PUC back in the rate-making business. The court also struck down the procedural challenges to the settlement, ruling that a provision of the Bagley-Keene Open Meeting Act allows public agencies to not only deliberate with their attorneys privately, but also to settle litigation. “In providing for private conferences with counsel regarding pending litigation, the Legislature must have intended the scope of privacy to be broad enough to include the bodies’ instructions to their attorneys as to how to proceed, including whether and with what limits to negotiate the settlement,” Werdegar wrote. “The legislative purpose of placing public agencies on a roughly equal footing with private parties in litigation would otherwise be defeated.” Moreover, the settlement was not subject to public review because it did not constitute an actual change in rates, but merely a continuation of existing rates, the majority ruled. But Justice Baxter took issue with the majority’s interpretation of Bagley-Keene, writing that the “pending-litigation exception does not imply a loophole allowing agencies … to meet in secret to make final decisions on matters of significant regulatory interest.” Nettie Hoge, the executive director of TURN, said in a release that it was a “sad day” for consumers. “The court’s opinion is not only unfair to ratepayers, it also lays out a blueprint for future backroom deals at their expense.”

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