Not since Thomas Edison invented the light bulb in the 1870s has there been such a zealous debate about the electricity that we all take for granted when we flip on a computer, recharge a cellular telephone or turn on a machine at the factory. The debate that followed Edison's invention concerned electrifying America, which changed every aspect of life. Today the discussion is far more technical, but equally important: How to deregulate the long-regulated electric-power industry so that benefits of competition are reaped by all.
The long-term implications of deregulation in California will affect every consumer, household and business in the state. Californians now pay about 50% more for electricity than the rest of the nation. A free market would bring rates down, but how much and for whom will depend on the deregulation framework set by the California Public Utilities Commission. This is a major policy change that warrants close scrutiny to ensure equity as well as competition.
LOOSE ENDS: The PUC recently concluded hearings in preparation for its final policy statement on deregulation, which it plans to issue before the year-end. On the next to last day of the hearings, Southern California Edison Co. weighed in with its recommendations. Edison's memorandum was a commendable attempt to craft a middle ground. It has drawn support on that basis, but it leaves many loose ends that should be addressed in additional public hearings.
The PUC's preliminary deregulation proposal, backed earlier this year by the majority of its commissioners, called for selling electricity at variable prices from a power pool supplied by all electricity producers in the state. This so-called "poolco" plan provided for myriad consumer and small-business concerns. A rival plan would allow customers to buy their electricity for a set price directly from the power generator of their choice. This direct access plan was favored largely by big business.
On Sept. 11, Edison and a small select group of big power users and suppliers presented a compromise that takes elements of both plans. It would provide both a power pool as well as direct access, but would be phased in over five years with only 125 large customers allowed to negotiate with power suppliers the first year. This raises concerns about market power. Equitable direct access should be made available to all customer classes simultaneously, without restrictions on small customers. In order to achieve this, the PUC needs to consider aggregating small and residential customer loads so that municipalities and other buyers have the right to group small customers within their boundaries.
COMPROMISE: Under its compromise, Edison would also be able to fully recover its past investments in nuclear power plants and long-term power contracts with alternative power sources from a distribution charge collected from all customers. Herein lies a contentious issue: What is the total amount of those so-called stranded costs? Should ratepayers bear 100% of these costs, or should Edison shareholders bear some of it? Edison makes a credible argument that the PUC regulated the terms of the nuclear plants and alternative power contracts so that Edison shareholders should not have to bear the costs in a changed, deregulated environment. Critics maintain that the high rate of return allowed on the plants has more than compensated shareholders risk and recovery of costs should not be imposed strictly on ratepayers. The PUC has said it needs to honor past commitments. But surely there must to some alternative to putting the onus on ratepayers. Without sharing the burden, rate reductions will be slowed.
The PUC took public comments on the Edison recommendations until Oct. 2, but the complexities of electric deregulation warrant continued public discussion.