Change, Maybe Confusion, on California Electric Rates : Historic deregulation will demand consumer savvy

Flip on a light, the air conditioner, hair dryer or computer. The necessities of modern existence come instantly to life, powered by electricity flowing through complex, distant grids and local power lines. We rarely give it a thought, except when the power goes out.

But soon Californians may have to ponder long and hard about electricity. Late last month Sacramento passed a historic bill to deregulate the electric industry, and Gov. Pete Wilson is expected to sign the measure, which will spur competition and create a market-based industry. California is the first state to embark on such an aggressive transformation in the way traditional, regulated electric utilities do business.

What does all this mean for California consumers, who now pay about 50% above the national average for power? A possibly dizzying array of choices concerning how and from whom to buy power and at what price. Individual consumers and businesses alike will have to become more savvy, just as they have about long-distance phone service since that business was deregulated more than a decade ago.

Come Jan. 1, 1998, electric rates for residential and small business customers of Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric will be cut 10%. That will reduce the current $65 average monthly residential bill to $59. In exchange for that rate cut, the utilities got the Legislature’s approval for a complex financing plan involving state bonds that allows them to be reimbursed for up to $30 billion of nuclear and alternative energy costs that they incurred over the years under state-regulated terms.

The rate cut applies only to investor-owned utilities, which are under the jurisdiction of the California Public Utilities Commission, not to municipal utilities such as the Los Angeles Department of Water and Power. The DWP’s residential rates already are about 20% below those of Edison customers in the area. Small-business rates are about the same under both providers, but DWP rates for large commercial users are relatively high. The DWP is seeking approval from the L.A. City Council to lower rates 4% to 5%, at a cost of about $25 million, for about 3,000 of its biggest customers and will slowly join the competition mandated by the state legislation passed last month.

The new measure maintains programs for conservation, efficiency and low-income users but gradually strips the producers of alternative energy--geothermal, solar and wind power--of most economic incentives and protections.

Deregulation will be phased in over five years beginning in 1998. As the process unfolds, small consumers will be allowed to “aggregate”--pool together--in groups such as condominium associations or communities to buy their power at lower bulk rates. Large purchasers might deal directly with power suppliers and then pay a fee to utilities to transmit and distribute the electricity.

Will this be hard for some to grasp? Definitely. But utilities have 16 months to plan for the change and inform their customers. If they use the time wisely, they can avoid confusion among consumers as a new era starts to take hold.