PUC Proposes Creating a Wholesale Market for Selling Electrical Power : Energy: Majority plan would create an electricity pool. Dissenting blueprint calls for moving to the ‘retail’ level.

A majority of the state’s public utility commissioners proposed Wednesday to establish a wholesale market for selling electricity, a major move forward in California’s pioneering effort to lower power rates through deregulation.

In an effort being watched around the world, the California commissioners are looking for a way to use market competition to replace state-imposed rules that govern the way customers from refineries to homeowners buy electricity. The hope is that competition among producers of electricity will lower costs to all customers of the $20-billion industry.

On Wednesday, the commissioners issued two policy blueprints for lowering electricity rates in the state, revealing a deep split in their thinking at this stage.

One proposal, supported by three of the four commissioners--including the newest, Henry M. Duque--would keep competition at the wholesale level until at least 1999. The other would allow customers to choose their own power generators--on the equivalent of a retail market--as early as 1997.

Many observers around the country had expected California to move more quickly to a retail market. “We all agree with the end result; we only disagree on how to get there,” Commissioner P. Gregory Conlon said to a packed audience in the commission auditorium.

Southern California Edison Co., which has long supported limiting any new electricity market to wholesale deals, was pleased at majority support for the more cautious approach.

“We think the principles are a sound basis to move utility restructuring toward a competitive environment,” said Tom Higgins, an Edison vice president.

The majority proposal, crafted by Conlon and PUC President Daniel W. Fessler, would create a pool of electric power that would buy the cheapest power available from both independent generators and utility power plants. This wholesale pool would sell power at cost to the state’s utilities, which would continue to deliver it to all customers.

The rival proposal by Commissioner Jessie J. Knight Jr. would allow direct contracts to buy and sell power between customers and generators, with no power pool in between. Utilities would also have to divest their power plants and get out of any situation in which they compete with independent power generators.

Knight predicted his proposal would bring a substantial reduction in rates, noting that even a 10% drop in the state’s power bill would mean a $133-million boost each month to the state’s economy. Robert D. Glynn Jr., president-elect of Pacific Gas & Electric Co., which has already announced that it will build no new generating plants, preferred the Knight proposal.

“We have felt all along that customer choice was inevitable, and the proposal that received the most support today is going to delay that choice,” Glynn said.

But Fessler said his proposal would allow such direct sales, depending on how the wholesale market works out over the first two years.

Meanwhile, both proposals narrow the debate on many issues. Environmentalists, for example, had worried when the commission launched its hunt for a deregulation plan more than a year ago that California’s much-praised support for energy efficiency and renewable energy sources would fall by the wayside as electricity came to be treated like a common commodity. Strong support for these programs--as well as subsidized rates to low-income consumers--were included in both proposals.

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Electric Deregulation

Public Utility Commission members Wednesday issued two competing policy blueprints to convert the state’s electric utility industry to a market-based system. After public hearings and industry comment, a final policy is expected later this year.

THE RETAIL MARKET MODEL * Customers ranging from industrial users to residents could buy power directly from generators or through their utility. Residents would probably buy through homeowners groups or independent brokers. * Regulated utilities would distribute power to customers and offer energy-conservation plans and other services, but they would no longer generate electricity themselves. Independent administrators would control power transmission and distribution to customers, but according to contracts between customers and power generators. * The plan would take effect sometime in 1997. * This model is supported by Pacific Gas & Electric Co., PUC Commissioner Jessie J. Knight Jr., large industrial power customers and independent generators.

THE WHOLESALE POWER POOL MODEL * A pool for investor-owned utilities would buy the cheapest electricity available from any source--a traditional utility, independent power company or out-of-state utility--on a wholesale market, where prices could change as often as every 30 minutes. Independent administrators would control bulk power transmission lines. * The utilities would buy from the pool for distribution to residential, small business and industrial customers. * By 2003, all customers would have meters showing the cost of their power throughout the day, allowing them to change usage patterns to save money. * The pool would be implemented on Jan. 1, 1997. * Some form of wholesale pooling is supported by Southern California Edison Co., San Diego Gas & Electric Co., PUC President Daniel W. Fessler and PUC Commissioners P. Gregory Conlon and Henry M. Duque.