PUC Deregulation Proposal Draws Critics Left and Right : Energy: Consumer advocates and financial analysts voice concerns about an open electricity market.

The idea driving deregulation of the state’s electric utilities is lower power bills.

But a surprising range of critics, from consumer advocates to financial analysts, question where the savings would come from under the plan proposed this week by the state Public Utilities Commission.

Proponents say market forces will inevitably bring rates down--a development they see auspicious signs of in other deregulated industries.

For instance, the PUC wants to change its rate-setting procedure to a method favored by the utilities--”performance-based ratemaking”--in part because it allows them the chance to profit from efficiency gains.

But “only when utilities get enhanced profits are they obliged to give some of that back,” says Michel P. Florio, senior attorney with Toward Utility Rate Normalization, a San Francisco-based consumer group. “What performance-based ratemaking means is that your rates keep going up, just a little more slowly.”

Moreover, the plan also calls for all ratepayers to pay a transitional fee to cover so-called stranded utility investments--such as expensive nuclear plants--that may not be competitive amid retail competition.

“How is the commission going to maintain the financial integrity of the utilities, to not have losses from stranded investment, and still reduce rates?” asks Mark D. Luftig, an electric utilities analyst at Kemper Securities Inc.

After the PUC’s announcement, Kemper weakened its rating for SCEcorp, parent of Southern California Edison Co., from “average risk” to “high risk.”

“We still have SCE as a long-term buy,” Luftig says, “ . . . but I’m not going to bang the table anymore until I see what the (PUC’s detailed) plans are.”

Stock traders apparently share some of his concerns. On the New York Stock Exchange, Pacific Gas & Electric Co. shares plunged $1.75 on Friday to $27.50, while SCEcorp tumbled 62.5 cents to $15.625 and San Diego Gas & Electric Co. lost $1 to $22. SCEcorp shares are now at their lowest level in five years.

Until now, retail electric competition has been tried only in England and Wales, which unleashed competition for large industrial users in March, 1991. That step came in tandem with privatization of the once-national industry, making meaningful lessons for California’s experiment hard to extract.

Still, British rates have dropped 30% to 35% for small businesses while rising for large industry, though much of that has stemmed from the loss of government subsidies. Rates have remained level for residential consumers.

“It looks as if what should happen in theory is, in fact, happening,” says Lynn Scarlett, vice president of research at the Reason Foundation, a market-oriented think tank in Los Angeles.

Scarlett and others also cite parallel experiences in the deregulation of telephone service. Deregulation of long-distance calling has brought a substantial drop in rates. And rate declines in a New Zealand experiment with local phone deregulation--which better mirrors the complexities of electric deregulation--also offer cause for optimism, Scarlett says.

Phone companies have also had experience with the other side of the PUC plan: a switch to rate setting that rewards utilities for their efficiency gains.

Pacific Bell, notes PUC Commissioner P. Gregory Conlon, operates under rules similar to those that would govern the electric utilities. Its rates have steadily dropped--by 1.5% in 1993 alone.

“And that benefit will flow through to residential customers before 2002,” Conlon adds, the year residential power users would get to choose their electric supplier.

The PUC envisions a market developing in 1996--when industrial customers get to choose their supplier--that will lower the price of power even for still-regulated consumers, because their utilities will be buying on that market too.

“It’s like in any competitive market,” says John A. Anderson, executive director of the Electric Consumer Resource Council, a big-industry group that supports the PUC plan. “Everybody doesn’t have to shop to benefit.”