Assembly OKs Bill to Deregulate Electricity

As some of the state’s largest industries mount the year’s most intense lobbying effort, the Assembly on Friday approved legislation that would transform how Californians buy electricity. A final vote in the Senate is expected to take place today.

Working with many of the Capitol’s highest-priced lobbyists and most-powerful interests, state Sen. Steve Peace (D-El Cajon) has put together a phone book-size bill.

It seeks to deregulate the electrical industry, phase out monopolies held by California’s three largest utilities, open the delivery of electricity to competition and give rate cuts of up to 20% to homeowners and renters.

The proposal is likened to telephone deregulation in its scope. But Peace, along with Democratic and Republican lawmakers who helped fashion it, insists that the bill offers protections for small consumers that were not part of laws that opened the telephone industry to competition.

“It’s our effort to protect California consumers and businesses from the dislocation that occurred in telephone deregulation,” Peace said.

The bill has been the focus of the largest lobbying effort of the year, possibly of the 1990s. Public reports detailing the magnitude of the effort won’t be filed for several months. But in the first half of 1996, the three utilities spent a combined $1.5 million on lobbying. The firms also gave a combined $300,000 during the first half of the year in campaign donations, plus additional sums for letter-writing campaigns.

“This is probably the most important bill [for Edison] in the last decade, if not the last few decades,” said Robert Foster, the Southern California Edison vice president who oversaw the lobbying effort. “We put resources commensurate with the task.”

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While Peace and its advocates say the bill will lower costs, some experts are sounding warnings, and are critical of provisions inserted specially for groups with a stake in electrical deregulation.

“The whole thing is a shot in the dark,” said Lenny Goldberg, representing the consumer group Toward Utility Rate Normalization, which is neutral on the bill.

The deregulation proposal, contained in Assembly Bill 1890, makes two basic promises:

* First, utilities can recoup from ratepayers money for various bad investments, chiefly nuclear power plants. Altogether, the bad investments amount to $28.5 billion.

Customers already pay for the bad investments as part of their monthly bills. But proponents of AB 1890 say they cut $9 billion from what the California Public Utilities Commission had granted to the utilities to retire such costs.

Some critics contend that customers are being asked to bail out utilities, and that the $28.5 billion amounts to a tax.

Lawmakers could have refused to let the utilities recover the costs. But they reasoned that, over the decades, government encouraged the utilities to embark on projects, including nuclear energy, that proved to be money-losers. It is now unfair, they say, to penalize the companies for complying with those orders.

“We did make a decision--we didn’t want to bankrupt [the utilities],” said Assemblyman Jim Brulte (R-Rancho Cucamonga), one of the bill’s main authors.

Brulte distributed a letter from an anti-tax group declaring that the $28.5 billion being passed along to ratepayers “resembles a regulatory tariff,” not a tax or a fee.

* The second provision is that California’s three major private utilities--Southern California Edison, San Diego Gas & Electric, and Pacific Gas & Electric--must cut electric rates by 10% for residential and small commercial customers by 1998.

The rate cut will be funded by a new type of bond created by the legislation. The state and utilities will use the bonds to refinance part of the utilities’ debt, allowing for the 1998 rate reductions. The bonds will be repaid over 10 years from utility bills.

Such a financing plan has never been attempted. But Peace and other lawmakers insist it will work. He and proponents also say the bill guarantees a second 10% rate cut in 2002, after the bulk of the utilities’ $28.5 billion in bad investments are paid off.

“We’re going to be watching the utilities like a hawk to make sure they implement the rate cuts,” said Assemblywoman Diane Martinez (D-Monterey Park), another supporter.

The bill focuses on private utilities, not municipal utility districts such as the Los Angeles Department of Water and Power.

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Although the bill is massive, the public process leading up to today’s vote was unusually swift. One of the hardest-driving members of the Legislature, Peace commenced hearings in a joint Assembly-Senate conference committee Aug. 5.

Peace met into the early morning hours and over weekends. Lobbyists likened Peace to a drill sergeant as he shepherded the complex legislation through the committee.

Despite the bill’s magnitude, it faces surprisingly little opposition. Already, 72 of the Legislature’s 118 sitting lawmakers have endorsed the bill, and Gov. Pete Wilson likely will sign it.

A smattering of consumer groups are trying to kill it. But they failed to realize until late in the week that Peace would finish working on the bill so quickly, and have had little time to mobilize.

“We never thought [the bill] had a chance,” said Harry Snyder of Consumers Union.

The legislation comes as the Federal Energy Regulatory Commission prepares to issue a decision that could accelerate deregulation nationwide. The measure also is a reaction to a state Public Utilities Commission decision in December calling for electrical deregulation.

The legislation echoes parts of the PUC decision, though unlike the PUC decision, the bill offers the immediate 10% rate cut. And while many industry, trade and consumer groups opposed the PUC decision, the major players support Peace’s bill.

Like the PUC decision, the legislation permits the utilities to recover many costs associated with bad investments such as nuclear power--although lawmakers say they have cut $9 billion from what the PUC would have allowed.

The utilities will pass along the remaining $28.5 billion in costs to consumers in what is called a “competition transition charge,” a phrase certain to become familiar to anyone who reads their electrical bills.

For residential customers of Southern California Edison, the charge will be 40% of their electric bills, tailing off to 1% by 2008.

There are other less-obvious differences between the PUC decision and the legislation--the result of lobbying efforts. PUC member Daniel Fessler, the main author of the December decision, predicted that the bill will end up costing consumers “in excess of $1 billion” beyond what the PUC would have allowed.

“I find it ironic that that [added cost] is the result of a product being advertised to the public as lowering costs,” Fessler said, citing special favors granted in the bill to various lobbying groups.

In one example, the PUC decreed in January that Southern California Edison could not pass along to consumers costs associated with costly long-term natural gas contracts.

The legislation proposes to overturn that decision, granting Edison the authority to pass on to consumers as much as $150 million in costs. Edison officials view the provision as a defeat. It had hoped to recoup up to $400 million in costs.

In general, the utilities can collect money for old investments in power plants and fuel contracts only until the end of 2001. But the legislation contains exceptions. One is for Edison’s and San Diego Gas & Electric’s investment in the San Onofre Nuclear Power Plant.

One paragraph in the bill says the utilities can continue to collect costs for San Onofre until 2003. That one paragraph could translate into an extra $120 million to $350 million from ratepayers, critics believe.

“It is a continuation of the Public Utilities Commission policy of giving nuclear operating subsidies to utilities,” said Bill Marcus, of JBS Energy and energy consultant for consumer and environmental groups. “The Legislature had an opportunity to say, ‘Enough is enough,’ but it didn’t.”