Optimism and Caution at PUC Hearing : Energy: Gas Co. CEO sings the praises of deregulation to electric utilities, but ‘get it right the first time,’ he says.
Richard D. Farman, chief executive of Southern California Gas Co. and a veteran of 10 years of utility deregulation in his own industry, offered an optimistic assessment Tuesday to the top brass of the state’s investor-owned electric utilities, which may soon take a similar path.
Though the experience has at times been painful, the Gas Co. is now “a much more customer-focused and cost-conscious company,” Farman said at the first of a series of public hearings held by the California Public Utilities Commission to assess its ambitious electric deregulation plan.
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But he also had a warning--one that struck directly at the conundrum facing the state’s investor-owned electric utilities, whose stocks have taken a $3-billion beating since the PUC announced its proposal April 20:
“Get it right the first time,” Farman advised. And once a plan is decided upon, stick to a schedule “infused with an appropriate sense of urgency.” Otherwise, he said, regulators will have trouble keeping up “once the genie of competition is out of the bottle.”
At the daylong hearing at the Los Angeles Convention Center, the electric utilities nonetheless urged caution as the PUC forms its plan. That reflected their shock at Wall Street’s highly negative reaction to the deregulation proposals, which would institute retail competition for industrial customers beginning in 1996 and extend customer choice to residential users by 2002.
“You put forth a proposal and you got trashed,” San Diego Gas & Electric. Co. Chairman and Chief Executive Thomas A. Page bluntly told the commissioners.
“We need to keep reminding ourselves that what comes out of this proceeding will have a far-reaching effect on people, businesses and communities throughout California,” added John E. Bryson, chairman and chief executive of Southern California Edison Co., after reading part of a letter from an anxious 71-year-old investor.
Meanwhile, consumer groups--largely represented by the new Consumer Alliance for Electricity Rate Reductions--called for speedy action if it would lower rates.
Alliance members--which range from San Francisco-based Toward Utility Rate Normalization to the California Large Energy Consumers Assn.--presented major findings of a study comparing the operating costs of California’s electric utilities to others around the nation.
The study concludes that California consumers paid $6.4 billion more than they should have in 1992--a finding disputed by the utilities but one the PUC plans to review. The alliance has called for a 25% reduction in rates over the next five years, even as the PUC debates its long-term competition plan.
“We need reform,” said Michael Boccadoro, executive director of the Agricultural Energy Consumers Assn., an alliance member. “We can’t wait 10 years. We can’t wait five years.”
During the 1980s, many natural gas utilities complained of both the long transition involved and the “hurry up and wait” stance of federal regulators as their industry was deregulated, one PUC staff member noted.
But in their comments to the commissioners, both electric utility executives and environmentalists said speed is what they don’t want.
Environmentalists are concerned that California’s much-vaunted renewable and non-polluting electricity sources won’t be able to compete in an open market with cheap electric power from outside the state, or with a new generation of natural gas turbines.
For its part, Edison wants to postpone competition at the retail level while the state institutes a wholesale power-buying pool that would match on an hourly basis the lowest-cost electricity available--potentially anywhere in the West--with power-buying utilities.
Indeed, Edison, independent energy producers and environmentalists contend that most of the cost savings likely to occur with competition could be had through creation of an efficient wholesale--rather than retail--marketplace.
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But others say they are ready to compete at the retail level right away.
Alan K. Richards, a Palm City, Fla., electricity broker, was courting municipalities and other potential customers in a rented room next to the PUC hearing.
“We have plenty of power,” Richards said. “We’re competition, and we’re here to lower your rates.”
The hearing continues today, with further hearings set to begin July 1 in Sacramento to discuss ways that energy conservation, environmental considerations and other social concerns can be maintained in an open electric market.
