Deregulation Talk Resumes

Deregulation Talk Resumes

Jun 04 - Daily Breeze

After spending $50 billion on its botched effort to deregulate electricity markets, California is back to debating the value of loosening power regulation.

To be sure, the blowup of 2000-2001 vaporized public support for complete deregulation.

But under pressure from large electricity users and independent power plant builders, the Legislature is considering several proposals for deregulating up to 30 percent of the state's power market.

Proponents of the partial market loosening are quick to emphasize that their plans would protect most residential and small-business customers with rates and service regulated by the California Public Utilities Commission.

But they propose allowing larger customers to sign contracts with unregulated electric suppliers, so-called direct access agreements.

Lawmakers who support partial deregulation believe that freeing these customers for direct access would provide an incentive to independent energy companies to build badly needed power plants.

And the independent providers, deregulation advocates say, would also provide healthy competition to utilities and drive down rates for all.

Under state law, new unregulated private electricity deals are banned until 2013. That's when the last of the overpriced electricity contracts signed by California during the crisis expire.

Legislators feared that allowing large power users to make cheap power deals would burden those who pay for crisis costs as part of their monthly utility bills.

But state law allows direct access deals signed before the ban to continue.

Within San Diego Gas & Electric's territory, for example, about 18 percent of the electricity is provided under these unregulated contracts.

Those direct access customers are supposed to pay exit fees to cover their share of crisis costs, but those costs are capped and have not been fully paid.

Advocates of partial deregulation -- known in industry jargon as a core/non-core market structure -- promise that their new plans wouldn't allow big customers to escape their share of crisis costs or the overhead of maintaining the state transmission and distribution system.

"My first objective is to protect core customers," said Assembly Speaker Fabian Nunez, D-Los Angeles, sponsor of the most recent partial deregulation bill.

But the assurances from Nunez and others fail to mollify consumer advocates.

They liken guarantees of consumer protection under partial deregulation as akin to assurances of being careful about unprotected sex.

Allowing partial deregulation, they say, is bound to save big customers money at the expense of smaller customers.

"I don't believe you can prevent cost shifting," said Michael Florio, senior attorney for The Utility Reform Network, a consumer advocacy group in San Francisco.

He says that polls show overwhelming public support for full regulation of the electric industry, similar to the type in place for most of the last century. But there's little evidence of that sentiment in the Legislature.

The strongest evidence of the renewed tilt to partial deregulation is the fact that the latest proposal comes from the Assembly speaker himself.

Nunez says he's concerned about projections of tight state electricity supply as soon as 2006 and he's sensitive to complaints from utilities that the regulatory environment is so unstable they can't safely invest in new plants.

During the deregulation experiment, it was assumed that market forces would create incentive for new power plant construction, so utilities were relieved of their obligation to plan and provide adequate electricity supplies.

The PUC has since reversed course and reaffirmed the utilities' responsibility to ensure reliable service. But utility executives say they have difficulty obtaining financing in the current environment, with lenders fearing changes that could affect the ability to repay loans.

Independent energy companies, meanwhile, say they face the same financing problem and add that recent PUC rulings leave them at a disadvantage in competing with utilities in plant building.

Large power users, for their part, believe they could get cheaper power deals if they were freed from the requirement of getting service from their local utilities.

Nunez's bill, AB 2006, would allow the 30 percent of the market that includes larger power consumers to sign supply contracts with unregulated electricity suppliers. Smaller customers would remain protected by the PUC, he says.

The bill, which Nunez acknowledges Southern California Edison played a significant role in crafting, guarantees that utilities can recover their plant building costs and earn profits on their investments. That should offer reassurance to lenders that utility construction loans will be repaid.

But the speaker also emphasized that under AB 2006, utilities would compete against independent energy providers for the right to build new power plants.

"If utilities can assure the PUC that the investment they make in building a generating plant is more cost-effective, they will have a leg up," said Nunez.

To assure a stable power market and allow for prudent planning by utilities, AB 2006 would require that large customers who retain local utility electricity service give five years notice of plans to depart for a private, unregulated supplier.

For far more extensive news on the energy/power visit: http://www.energycentral.com .