Future Shock : Power Market 2002: Deregulated, Diverse, Dynamic

It’s fairly clear how heavy industry will take advantage of the post- monopoly market for electricity that the Public Utilities Commission said this week it plans to establish in California.

But it is far from certain how small businesses and residential customers will shop for electricity in 1999 and 2002, respectively, when they join the system.

“No matter how smart we are, we don’t know how the market will develop,” PUC Commissioner P. Gregory Conlon said Thursday.

If the commission formally adopts its proposal following public hearings this summer, experts say, the details will begin to come into focus.

Most of the likely sellers in the deregulated retail market for big industrial customers--which would begin in 1996 under the PUC plan outlined Wednesday--are already around, thanks to the existence of a lively wholesale market for power in the western United States.

“There are very sophisticated markets that act at the wholesale level,” said John E. Bryson, chairman and chief executive of Southern California Edison Co. and its parent, SCEcorp.

Edison and the state’s other investor-owned utilities are active in that market, which trades power across the interconnected transmission lines known as the Western Grid.

With the PUC’s proposal to end local utilities’ monopoly on the sale of electricity within their geographic turf, out-of-area utilities, municipal utilities such as the Los Angeles Department of Water & Power and other producers could market their electricity directly to big power users. They would then pay Edison or another local utility to deliver it through the grid to the customer.

The new suppliers will be a diverse lot.

Investor-owned utilities in Arizona, which have a glut of generating capacity, could compete with Edison for its customers. So could some big industrial companies in Southern California who have built co-generation facilities: They could sell some of the cheap electricity they make from the waste heat of their industrial processes.

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Even wind-power generators--which have made great strides with more efficient technology and claim to be competitive now with utility-produced power--could be players. Edison recently signed a substantial deal to buy power from San Francisco-based wind-power producer Kenetech Corp. Such independent producers are expected to jump into direct marketing with the coming of deregulation.

Some experts expect investor groups to build new power plants just across the Nevada and Arizona borders, where environmental rules may be less restrictive but where the plants can easily be connected to the grid.

And the parent companies of California’s big utilities all have their own non-regulated power-generation companies, which most likely will be aggressive contenders in the post-1996 open market.

Envisioning a competitive market for small-business and residential customers is a more speculative venture.

One likely method, according to Conlon, would mirror a brokering system already in use to bring cheaper power to natural gas utility customers, including customers of Southern California Gas Co.

Already, Gas Co. marketers shop for the cheapest gas to sell to groups of small businesses or groups of homeowners--as in retirement communities or condominiums. Similarly, electricity customers might buy power through private brokers and marketers who in turn would purchase big blocks of power directly from generators.

A resident might sign up for a year’s worth of electricity through a particular broker, then shop again for a lower price the next season--something like buying an annual homeowners insurance policy through an independent broker. Contracts also could be set up to allow rates to follow the larger electricity market, like an adjustable-rate mortgage.

Larger businesses might solicit bids directly from both utilities and independents.

“A company like Safeway,” Conlon said, “might go out for bids from six utilities and more independents. They would probably get 10 or 20 bids.”