Electricity Deregulation Goes Haywire in California

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Electricity Deregulation Goes Haywire in California

Source: Knight Ridder/Tribune Business News

Publication date: 2000-08-14

Aug. 14--Sandy Galpar got her electricity bills this week and, in a word, she was shocked.

Galpar, a resident of San Diego, California, owns and operates Kensington Village Cafe and Treats, a restaurant and ice cream parlor. Last summer, she was surprised when her combined monthly electricity bills for her home and business climbed to $1,500.

This year she paid $1,900 in June and $2,400 in July for electricity. This month her combined bills hit the roof -- $3,000.

"If something is not done immediately, this town is just going to crash," she said.

The high prices fetched by California's fledgling deregulated electricity market have brought San Diego and other parts of California to its knees. Federal, state and city authorities, along with power company officials, are coming to grips with why the city and the rest of California are in such dire straits.

"The governor (Gray Davis) said that the electricity market is broken." said Art Larson of San Diego Gas and Electric, the main electrical utility that serves San Diego. "We concur with that."

"We think right now that the electricity market is dysfunctional," said Kyle Devine of the California Public Utilities Commission.

The push to deregulate California's electricity industry began in 1996 with a law signed by former California Gov. Pete Wilson.

The idea behind the restructuring was four-fold: split up old power monopolies and open the market to healthy competition; create technology that would make electricity cheaper to generate; offer customer choice; and ultimately bring lower prices to consumers.

The strategy has been used successfully by long distance telephone providers and the airline industry.

The same cannot be said for California's electricity industry, and those involved cite several factors that have contributed to a sector gone haywire.

After California weathered the recession in the early 1990s, the Golden State was unprepared to meet the electrical needs generated by a huge upsurge in economic growth.

"In 1991, how were we to know there would be such a surging economy in the year 2000?" said Patrick Dorinson of the California Independent System Operator.

The ISO is a nonprofit organization set up under deregulation to control the state's power grid. It is supervised by the Federal Energy Regulatory Commission.

"We have not built any new power plants in 20 years," he said. Nor has the state constructed any new transmission systems to carry electricity to the hundreds of thousands of new homes and businesses now dotting the California landscape. "Our demand has outstripped our supply."

Recent studies show that California would need to build two power plants a year to meet current electricity demand on its own, according to Larson.

San Diego residents were especially hard-hit because of a provision in the deregulation law. Under the statute, California's three main utilities -- SDG&E, Pacific Gas and Electric and Southern California Edison -- were required to pay off debts to the state that were incurred before market restructuring.

Only after the debt was retired could the utilities begin to charge market prices. Until then, consumers were protected from sudden price increases.

SDG&E was the first to charge its customers market-driven rates.

San Diego Mayor Susan Golding believes electricity deregulation in California was too abrupt and that her constituency was unfairly penalized.

"Frankly, how someone did not understand that the transition would take longer, that someone did not see this coming and adjust to avoid high prices, boggles the mind," she said last week in testimony to the ISO board of governors.

Another issue is the lack of a national or regional deregulation plan. No federal laws govern deregulation, so states are at various stages of deregulation, if they have budged at all. California receives a significant portion of its electricity from out of state, which complicates its case.

"How are we going to work together on a regional basis?" said Dorinson.

It's a question FERC is addressing. The agency is pushing for regional transmission organizations.

"Everyone is looking for, one, a scapegoat and, two, a Rosetta stone to help unlock the secret of making deregulation work," said Dorinson. "To judge the California example as a failure after merely 2.5 years, I think, is unfair."

"We believe that the state's electricity market is deregulated now," said Larson, "and we have to find a solution to work with on that framework."

"I still believe deregulation can work," said Golding, who along with Davis has called for an investigation by the state's attorney general into possible manipulation in the wholesale electricity market.

For her part, Galpar is anything but convinced that deregulation will work.

"It is definitely not working if this is the result," she said. "We all feel that someone somewhere is getting rich and that we are all getting screwed."

-- (in@the.news), August 15, 2000



Published Monday, August 14, 2000, in the San Jose Mercury News

Electric prices jolt San Diego


Mercury News

SAN DIEGO -- Darkness falls swiftly around Micae Martinet as she sits eating a portobello mushroom dish by candlelight that she cooked on a propane camping stove. Later, she'll flip on a battery-powered TV to watch ``Survivor'' on a seven-inch screen, and shower with water warmed in a plastic bag by the sun.

The experience reminds the 34-year-old sign-language interpreter of her travels in East Africa and Southeast Asia. But this isn't the Third World. This is La Jolla, her home.

Martinet was so mad when her bill doubled this summer as a consequence of deregulation that she had the utility disconnect her service.

San Diego Gas & Electric's 1.1 million customers are the first in the nation to pay market prices for power. Few have gone as far as Martinet to protest the high rates. Despite the cost, the power is still on most everywhere. But Martinet's response illustrates the depth of fury simmering beneath the business-as-usual veneer in this region on the front lines of the nation's move to deregulate electricity.

``It definitely was the principle,'' Martinet said. ``I just didn't think it was fair. We were all sold this deregulation plan, and consumers are really suffering for it.''

Because utility customers outside SDG&E territory are protected by a rate freeze until 2002 under California's 1996 deregulation plan, the Bay Area isn't feeling San Diego's pain.

But consumer advocates warn that unless government leaders fix the electricity market by then, the rest of the state and nation will follow San Diego's lead.

Widespread effects

From the scenic beaches to the sweltering inland deserts, area residents and businesses are dimming lights and shutting off air conditioners. They're turning off hot tubs and raising thermostats as high as they can stand it. Restaurants are cutting back hours, and markets are raising prices. All in hopes of bringing electric bills back down to Earth.

Many are fighting back by paying the utility only as much as they paid for energy last year, banking on a promise from government regulators that their service won't be shut off. Utility workers are being booed and spat upon. Priests are picketing the skyscraper of the utility's corporate parent, Sempra Energy.

``The whole community has been aroused,'' said the Rev. Glenn Allison, executive director of the Ecumenical Council of San Diego County, who is leading candlelight protests at the Sempra building. ``I've never seen an issue that has aroused so much attention so quickly.''

The scrambling in Sacramento for rate relief last week has done little to calm San Diego residents' rage. Many fear relief now will only mean payment down the road. They don't trust the utility's promise not to shut them off if they don't pay all of their bill. And they doubt state lawmakers who got them into the mess have the mettle to repair it.

``I don't think there's going to be any legislative relief, because the power companies are going to fight it,'' said City Councilman George Stevens at a demonstration last week in front of Sempra.

SDG&E officials say they, too, are concerned. They're offering a ``level-pay'' plan to smooth out price spikes, and $260 rebate checks from unexpected profits to customers. But they say high prices aren't their fault and urge customers to conserve.

``We no longer generate or price electricity,'' SDG&E President Edwin Guiles said in a letter last month to customers. ``The price of power is now a matter of supply and demand in the open market.''

And supporters of deregulation say that prices will come down when supply increases with new power plants coming online in a few years.

But San Diego residents take little comfort in that argument.

Like many of his neighbors, Marc Skora, 51, says he simply can't cut back energy use any further.

``We don't have air conditioning, and it's difficult to turn off the lights twice,'' Skora said.

Elderly impacted

The elderly on Social Security incomes have been hit especially hard. Nora Whitcotton, 63, said she gets $712 a month and spends $120 of it on prescription medicine. She needs oxygen from a machine running 24 hours a day.

When her electricity bill shot up to $117 last month from $46 a year ago, Whitcotton cut meat out of her grocery list, turned off the lights in her two-bedroom apartment and set the air conditioning on low, even though it's over 100 degrees in her inland community of El Cajon.

``It's enough to keep it to where I'm not panting,'' Whitcotton said. ``But it makes it really uncomfortable. It gets really depressing in here at times. It's just a really sad situation.''

Hal Goldberg, 70, of Mira Mesa is paying the utility only what he paid last year, and hoping he doesn't get socked for the rest later.

``We may have to sell our house, and there are other people thinking along those lines,'' Goldberg said, adding that without air conditioning, there's little more he can do to conserve.

``Am I supposed to stop showering, washing dishes?'' Goldberg asked. ``Are we going back to the cave?''

Residents complain they're getting a double punch, hit first with their own electric bills, then with higher costs at stores that have raised prices to cover their own bills.

A sandwich at the A-Chau deli in El Cajon that used to cost $1.50 now costs $2, and customers are mad. But owner Don Lam said he had no choice but to raise prices. His electric bill skyrocketed from $1,300 to $2,800, more than he pays in rent.

``The first time I saw the bill I couldn't believe it,'' Lam said. ``I thought it was a mistake.''

Lam's turned off half the lighting outside, and uses the air conditioning less, but he's got to keep the cooler running. So to stay in business, he said, prices had to go up.

``A lot of customers are complaining,'' Lam said. ``But I've got to do what I have to do.''

Fearing backlash, businesses are doing everything possible to avoid passing costs on to their customers. The La Shore Market in upscale La Jolla, on San Diego's northern coast, has raised the cost of a soda by 10 cents, but manager Sana Kassab fears more price hikes will scare customers away.

The Kensington Bistro has held the line on prices, but instead has stopped serving lunch because it cost more to run the air conditioners and lights than the cafe was making in sales, manager Alfredo Rojas said. He's told the dinner staff to come in an hour late. Still, he said the 2-year-old restaurant is falling behind since getting jolted with an electric bill that doubled to $1,000.

Businesses wary

Other businesses say they also are getting a double-whammy -- first by their electric bills, and then by customers who are staying home to save money.

Michelle Lin said fewer customers are coming to her Younglin Oriental Vegetarian Market, even though she hasn't raised prices. They tell her they can't afford to come as often.

``Customers say they want to support us, but they say they have their own problems,'' said Lin, who took in $4,000 less in July than she did the same month last year. ``Expenses go up, and business goes down. We can go a couple of months, and then probably we're going to have to close.''

The San Diego Regional Chamber of Commerce says it knows of no businesses folding because of the energy bills. But several business owners have said they may have to shut down temporarily.

Local leaders have estimated high bills have cost their economy $100 million and fear the trend will be crippling if it continues.

While San Diego's growing high-tech sector has been mostly quiet about the crisis, an exception has been SAIC, a research and engineering company that four years ago hosted then-Gov. Pete Wilson's signing ceremony for the deregulation bill. A SAIC official this week told a local paper that deregulation was poorly handled, and has cost the company $750,000.

Residents say they can't fathom how a deregulation plan that was supposed to help them could go so wrong.

``In my wildest dreams I can't imagine how they let this happen,'' said El Cajon resident Whitcotton. ``We're the first ones to find out what it's like, and I don't like it.''

-- (in@the.news), August 15, 2000.

My electric bill for july went from about 30 to 70. Wonder what would happen if everyone just didn't pay. Would they really shut of EVERYONE'S power? I doubt it. And it might drive prices back down. I am seriously thinking about not paying it.

-- cin (cin@cinn.cin), August 15, 2000.

I always knew Pete Wilson was an asshole. If we leave it up to people like him and George Bush they'll have all of us standing in a bread line in no time flat.

-- (screwing@up.economy), August 15, 2000.



Bill to cut San Diego power rates clears hurdle

Updated 4:33 PM ET August 10, 2000

By Nigel Hunt

LOS ANGELES (Reuters) - The California Senate on Thursday passed emergency legislation designed to cut skyrocketing electricity rates in San Diego back to levels paid last year.

San Diego customers are the first in the country to pay market-based prices without a safety net under rules governing the deregulation of California's power industry.

Rates have nearly tripled this year sparking public outcry in the southern California city. San Diego Mayor Susan Golding has said pensioners have been turning off refrigerators in an attempt to avoid massive electricity bills.

The bill was passed by the state Senate by 28 votes to nil. It needed to get 27 votes to clear the two-thirds majority required under the rules of the 40 member Senate.

The state Assembly will now consider the proposal.

The emergency legislation, sponsored by state Sen. Dede Alpert (D-San Diego), calls for a rollback in rates to levels paid July 1, 1999 when a price freeze introduced to protect customers during the transition to competitive markets in California was lifted.

The rollback would be retroactive to June 1, 2000.

The rate freeze was lifted last summer for customers of Sempra Energy subsidiary San Diego Gas and Electric.

But the freeze remained in place for for customers of the state's other two investor-owned utilities, Rosemead-based Southern California Edison, a unit of Edison International and San Francisco- based Pacific Gas and Electric, a subsidiary of PG&E Corp .

Last week the California Public Utilities Commission (CPUC), which regulates the industry, rejected an emergency motion from the San Diego-based Utility Consumers' Action Network (UCAN) calling for the rate rollback.

California Gov. Gray Davis on Wednesday called on the CPUC to establish a two-year plan that would cut electricity rates nearly in half for customers of San Diego Gas and Electric.

The CPUC has called an emergency meeting for Aug. 21.

Alpert said on Wednesday the governor's plan was a good first step to deal with the crisis and saw their bill as a second step.

Wholesale power prices have soared to record levels this year, and earlier this month, Davis called on the state's Attorney General to investigate possible market manipulation.

California's power problems are caused partly by increased demand linked to the nation's booming economy, with Western states among those showing the fastest growth.

There also have been few power plants built during the past 10 years and, although many are now planned, the prolonged approval and construction process means most will not come on line before 2002.

-- help (on@the.way), August 15, 2000.

http://home.digitalcity.com/sandiego/news/article.dci?% 20provider=metronetworks&category=News&article=555749


Power Supply Drain Expected

A heat wave gripping San Diego and the rest of the state is expected to put another drain on available power supplies today. Electricity officials suggest you keep battery-operated radios and flashlights available and caution those using electric life-support systems to check standby facilities and equipment, just in case of blackouts or brownouts. A Stage-Two power emergency was declared yesterday for the third consecutive day due to the high demand for electricity brought on by sizzling temperatures. The California Independent System Operator calls a Stage-Two crisis when power reserves fall below five percent.

-- But (in@the.meantime), August 18, 2000.

Was it hot yesterday?

btw, I just received a check for 150.00 from SDG&E. Not sure what that was all about. But that should just about cover my bill, so yay! =o)

-- cin (=oP@cin.cin), August 18, 2000.

Um cin, if I were you (and i'm not) I'd try to hang onto that check. Did you put down a deposit? If so perhaps its being returned, if not, I would be afraid to cash that one.

Last time somethin like that happend to me, I ended up owing that amount plus the overpayment.

Hoping for your sake it is your cash to spend.

xoxo,sumer aka charlie brown

-- consumer (shh@aol.com), August 18, 2000.

Cin - The $150 you received is a rebate for overcharges you previously paid.

Like many school districts and even the City itself, lots of folks plan on paying only what they paid *last* year and not a penny more. I think it's a better plan than not paying anything at all.

-- LunaC (SDGEsucks@raped.com), August 19, 2000.

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