Power Struggle in Electricity Market

Parent companies of California’s major utilities are battling a proposal that would ban their affiliates from selling electricity in the parent’s service area or using its name and logo during the first two years of energy deregulation.

The proposal, scheduled to go before the California Public Utilities Commission today, is designed to make it more difficult for affiliates of the state’s investor-owned utilities to dominate the electricity market after deregulation takes effect Jan. 1.

“It would be devastating to our business,” said Doug Oglesby, vice president and general counsel for PG&E; Energy Services, the electricity retailer created by PG&E; Corp., which also is the parent of San Francisco-based Pacific Gas & Electric Co.

PG&E; Energy Services has a contract to provide electricity to McDonald’s restaurants throughout the state, a deal that could be voided by the proposed rule unless commissioners insert a grandfather clause.

“It is anti-Californian. It gives the out-of-state players in this competitive arena definite unfair advantage. We also feel it is unconstitutional in what it restricts us from being able to say about our affiliates, our affiliate companies,” said Clarence Brown, spokesman for Southern California Edison, a unit of Rosemead-based Edison International.

“They’re working on things every day, signing up deals. We’ve invested quite a bit in our branding strategy of the Edison brand,” he said.

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Under deregulation, investor-owned utilities will not be able to market electricity directly to consumers. Instead, homeowners and businesses will be able to choose from a growing list of energy retailers, much in the same way they now choose a long-distance carrier.

The utilities will still generate power, but will sell it on a wholesale basis through a new electricity exchange. Retailers, including utility affiliates, must buy the electricity from the exchange, and then pay a fee to the utilities to have it transmitted to their customers.

The proposal, sponsored by Commissioners Jesse Knight and Richard Bilas, is based on the assumption that the affiliates will have an unfair advantage because of brand-name recognition. It also would prevent the utilities from giving favored treatment to their affiliates, said Bob Lane, a policy advisor to Knight.

“All competitors have to use the wires. The purpose of the rule would be to ensure that the utility can’t favor its affiliate because it controls the distribution system. In other industries, we have had problems with the affiliate being given favored treatment by the monopoly,” he said.

The proposal is actually an alternative to a less-restrictive proposal that would have required the affiliates to disclose to consumers the nature of their relationship with the utilities. Yet another proposal, sponsored by commission President Gregory Conlon, would permit utility affiliates to control as much as 20% of the market within the utility’s service area.

“I think it’s just too restrictive,” Conlon said of the Knight-Bilas proposal. “You’re eliminating a viable competitor from the market.”

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One industry analyst said the utility affiliates probably could survive under the Knight-Bilas proposal, although they would be seriously handicapped.

“I would suspect you’re not going to see the most drastic version come out of the commission,” said Alan Lindstrom, vice president of Redwood Securities in San Francisco.

“In my opinion, they’ve been pretty utility-friendly in this thing so far. I think they’ll take the middle ground.”