A daily compilation of significant news articles and comment
March 10, 2008
2. Supply -
Shake-up could be coming in electricity
By Ed Mendel, staff writer
Despite opposition from legislative leaders, the California Public Utilities Commission has begun a process that could allow businesses and homeowners to bypass utilities and buy power on the open market.
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The powerful commission, responding to a petition from a business group, is considering expanding a limited form of deregulation called “direct access.”
Instead of being restricted to buying electricity from a regulated utility, such as San Diego Gas & Electric, customers could shop among power packages offered by marketers and independent energy producers.
Cheaper power is a big incentive for
But in the wake of a botched deregulation attempt, which erupted in a crisis in 2000 and left
At a state Senate hearing last week, an official of the utilities commission said that the proposed expansion of direct access not only would include large businesses but also residential customers.
“I think it's just shocking that you want to pursue that path,” said Sen. Christine Kehoe, D-San Diego, chairwoman of the Senate energy committee. “Maybe for large customers. You need to study up on
Replied Nancy Ryan, chief of staff to Michael Peevey, the Public Utilities Commission chairman: “I will take that advice very seriously.”
A deregulation plan created by the Legislature in 1996, which voters upheld when challenged by a ratepayer-backed initiative two years later, touched off a crisis that began in San Diego in May 2000.
The smallest of
San Diegans held public protests and refused to pay part or all of their SDG&E bills. Small companies said they were being squeezed out of business. SDG&E employees said they were being harassed by angry ratepayers.
“This has been a long, hot summer for the people of
There was no relief for the two largest utilities: Southern California Edison and Pacific Gas & Electric. What the utilities could charge customers remained frozen by law, while what they paid for power on the market soared.
By January 2001, the two big utilities had a combined debt of about $12 billion and were unable to borrow more. The state was forced to step in and begin buying power for the utilities to keep the lights on in
The flawed deregulation plan had encouraged the utilities to sell their power plants and buy power on a daily market. Enron and other power sellers were accused of manipulating the market to drive up prices.
In the years that followed, federal regulators required the power sellers to refund about $6 billion in overcharges to
But ratepayers continue to pay for the deregulation fiasco in a number of ways.
Ratepayer bills are inflated by payments for $8 billion in bonds that paid for a 10 percent rate reduction, which was criticized as a ploy to show ratepayers they were benefiting from deregulation.
Ratepayers also are paying for $11.3 billion in bonds issued by the state to buy power for the utilities, and a “competition transition charge” that repays utilities for long-term investments made before deregulation began.
Some estimates are that the failed deregulation cost ratepayers $10 billion to $20 billion, said Mike Florio of the Utility Reform Network in
“I think $20 billion to $25 billion is a safe number on the overpayment,” said Michael Shames of the Utility Consumers' Action Network in
One of the continuing ratepayer costs from deregulation is the remainder of $43 billion in long-term power contracts hastily signed by the state in early 2002 in a desperate race to control soaring power costs.
The state renegotiated 34 contracts, saving about $7.4 billion, according to the state Department of Water Resources. The remaining 26 contracts worth $12.6 billion are still providing more than 20 percent of the power for the three utilities.
The U.S. Supreme Court may issue a ruling this year on whether the state can reopen talks on some of the remaining contracts, including a big one with Sempra, SDG&E's parent company.
Meanwhile, the remaining long-term state power contracts are a central issue in the attempt to expand direct access.
A law enacted at the height of the energy crisis in 2001 barred new direct access, but allowed customers who already were receiving power through direct access – now less than 10 percent of the total load – to continue to do so.
A coalition of 200 businesses, joined by some government agencies, petitioned the Public Utilities Commission in December 2006 to lift the ban on new direct-access purchases, contending the energy crisis was over.
But the law that barred new direct-access purchases said they cannot resume until the state no longer is providing power to utilities. The last of the long-term contracts do not expire until 2015 or 2017.
The commission was reminded of the contract obstacle in a letter sent in May by legislative leaders, including Senate President Pro Tempore Don Perata, D-Oakland, and Assembly Speaker Fabian Núñez, D-
“More generally, we believe that the reopening of direct access is a fundamental policy change that should be considered only by the Legislature,” the legislators said in their letter to the commission.
But the independent commission, which has regulatory powers granted by the state Constitution, voted Feb. 28 to look at ways to end state power buying, presumably through changing contracts or reassigning power flows.
“After that, the California Public Utilities Commission can proceed to the question of whether and how to reinstate direct access,” chairman Peevey said in a news release.
Signaling its desire to shift power-buying back to the utilities, the Schwarzenegger administration's Department of Water Resources restructured a favorable contract with Calpine last fall to provide much less power.
Pacific Gas & Electric complained that the change could result in purchasing power from other sources at a higher rate, costing ratepayers $130 million to $200 million more. The Department of Water Resources disagreed.
Advocates say direct access allows customers to choose rates and services that help them compete and manage risk while developing a broad power market that can provide more options and lower prices for customers.
Opponents say expanded direct access could undermine the long-term stability needed for investments in the power system, shift costs from one group of customers to another and produce unintended consequences such as the failed deregulation.
“The problems will be different, but they could be equally profound,” said Shames of the
http://www.signonsandiego.com/uniontrib/20080310/news_1n10dereg.html
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