Saturday, July 29, 2000

Consumers Seek Repeal of Utility Deregulation Electricity: Surging bills and shortages have convinced many that competition isn't working. But a solution is elusive.

By NANCY RIVERA BROOKS, Times Staff Writer

California's pioneering 4-year-old effort to deregulate the electricity market is increasingly being judged as a costly disappointment, or even a failure.

Consumers, businesses, politicians and utility industry officials are proposing a patchwork of fixes for the state's $20-billion electricity industry--everything from retail and wholesale rate freezes to an outright dismantling of California's push into open competition. Cheap, reliable power was the aim in the dismantling of a decades-old system of utility monopolies that generated and delivered power and regulators that decided what customers would pay. While deregulation has allowed some large commercial users to negotiate lower overall annual electricity costs, this summer's heat waves have brought the twin shocks of record prices and extremely thin electricity supplies. The unhappy upshot of the free market so far has been a doubling of the electric bills of customers in San Diego and south Orange County--the first in the nation to pay market rates--and a serious shortage of electricity generation--a deficit so extreme that on a hot summer day California simply cannot round up enough electricity to meet demand.

On June 14, localized electricity grid problems plunged the San Francisco Bay Area into the state's first deliberate blackouts since World War II, and rolling blackouts remain a threat throughout the state during high demand. The sentiment has turned more negative than ever this week. Blasting electricity deregulation as a "failed experiment," a coalition of consumer groups demanded Friday that Gov. Gray Davis and the California Legislature repeal the 1996 law that launched the restructuring of the state's electricity industry. Davis on Thursday called the current electricity market situation "unjust and totally unacceptable" and urged federal and state regulators to adopt wholesale electricity price caps. Davis also recommended approval of a proposed $100-million rebate to the hard-hit customers of San Diego Gas & Electric Co., which was the first of the state's investor-owned utilities to end a state-mandated rate freeze, allowing it to pass along higher electricity costs to customers. This is the latest evidence of the rising consumer anger and broadening political pressure to do something about swollen electricity bills that eventually could spread to the rest of the state. But what should be done? That depends on what exactly you think is wrong with California's enormously complicated electricity industry, which is now broken into three separate businesses: making the power, distributing the power and marketing the power to businesses and consumers.

Deregulation forced utilities to sell off their power plants and open their retail markets to electricity resellers, leaving the utilities primarily in the business of distributing power. The legislation also froze rates for consumers and small businesses, until early 2002 or until the utility paid off debts on business that had been made unprofitable by deregulation--nuclear power, for example. Even consumer groups don't quite agree on the solution; politicians, regulators, power generators and the state's big investor-owned utilities all have their own immediate and longer-term fixes. Most who have weighed in see the deregulation process either as fundamentally flawed or as struggling through an imperfect transition period.

Deregulation proponents fear that tinkering with the underlying rules of the market restructuring will scare off potential power plant builders and other market entrants, making the electricity shortage even worse. Indeed, many market observers say uncertainty over the direction of deregulation is one of the reasons that no new power plants were built in California in more than a decade. Since deregulation, about $10 billion in new power plants and other energy investments has emerged, although most will not come on line until 2002 or later, said Jan Smutny-Jones, chairman of the California Independent System Operator and executive director of a trade group for alternative energy producers.

Smutny-Jones acknowledged the need for "mid-course adjustments," particularly to bring small customers more of the benefits enjoyed by large customers, but added: "Trying to re-regulate this market would be a total disaster, which would result in serious reliability problems here in California and certainly wouldn't realize lower costs for anyone."

Consumer Groups Urge Repeal But three consumer organizations on Friday advocated that the Legislature and regulators repeal deregulation and place controls on the price of electricity charged by power producers and the retail price charged to consumers and businesses. They also called on lawmakers and regulators to roll back rates in San Diego to levels paid under the old freeze, and maintain the rate freeze for the customers of Southern California Edison and Pacific Gas & Electric. "Utility companies and politicians made mistakes, and consumers aren't going to pay for them. We need to put a lid on the damage being suffered by the consumers of San Diego now and prevent a similar crisis from hitting the whole state next year," said a statement by the Foundation for Taxpayer and Consumer Rights, Consumers Union and the Utility Reform Network. These same organizations were behind the 1998 ballot initiative that would have undone parts of the deregulation process. The measure was defeated amid heavy opposition from utilities and large businesses. Notably absent from the group is the Utility Consumers' Action Network, the San Diego-based consumer advocate that has been actively working to mitigate deregulation problems. The network, which is hosting an SDG&E bill-burning in downtown San Diego on Wednesday, has petitioned the California Public Utilities Commission to temporarily freeze rates for SDG&E customers at 115% of the old frozen electricity rates. (The PUC will consider the matter at its meeting Thursday, but a commissioner and an administrative law judge have separately recommended rejecting a retail rate freeze.)

"Philosophically, we are divided," said Michael Shames, head of the Utility Consumers' Action Network. The network "believes a call for total repeal of the law is premature and probably impractical. "But we're going to have to watch and see whether and how the state deals with the San Diego crisis," Shames said. "If regulators continue to botch their job of protecting consumers, then repeal of the law may be the only option available to the Legislature." Several state legislators, including state Senate President Pro Tem John Burton (D-San Francisco) and state Sen. Steve Peace (D-El Cajon), have vowed to hold hearings on whether to amend or repeal the deregulation law after lawmakers return Aug. 7. Peace, one of the chief architects of deregulation, also has called for wholesale electricity price caps. Currently, the price of power when bought a day or more ahead at the California Power Exchange, a nonprofit agency that operates the state primary power market, can rise to whatever the market will bear. However, same-day emergency power purchased in a backup market operated by the California Independent System Operator, which runs the power grid and makes sure there is enough power to meet demand, is capped at $500 a megawatt-hour. San Diego Gas & Electric, now primarily in the business of distributing electricity that it purchases on the California Power Exchange, plans to petition the Federal Energy Regulatory Commission to impose a wholesale price cap on electricity in all the Western states. SDG&E also plans to ask the PUC to let it install "real-time" meters so that even small customers can benefit by reducing their usage at times of peak prices.

In the meantime, the utility is expanding a plan to level out payments over the entire year and wants to accelerate payment of nearly $500 million due to customers from deregulation bond refunds and electricity revenue generated by the San Onofre nuclear power plant. "Clearly, there are problems with the deregulated marketplace today, but it's also just as clear that we are in a transition period," said SDG&E spokesman Doug Kline.

http://www.latimes.com/news/front/20000729/t000070969.html

-- Martin Thompson (mthom1927@aol.com), July 29, 2000

Answers

This whole thing is utterly ridiculous. The problem is, simply, shortage of fuel. Oil--diesel and distillate--gasoline, propane, and natural gas are all in short supply--ESPECIALLY propane and natural gas. (The only fuel that is in surplus is coal.)

All the bureaucrats' and politicians' price freezes and all the King's men are not going to put Humpty Dumpty together again.

-- JackW (jpayne@webtv.net), July 30, 2000.

That's right. I can't see how getting rid of deregulation is going to help anything at all.

-- Wellesley (wellesley@freeport.net), July 30, 2000.