Deregulating Utility: Go Easy

I’ve been trying to sort my way through the issues of electricity deregulation, including Proposition 9--which proposes an immediate 20% cut in electric rates--on the November ballot and an attempt by the governor and others to diminish the authority of the Public Utilities Commission.

My initial inclination is to cry, Whoa!

These are issues almost no one fully understands, and as far as the initiative goes it is likely, on both sides, to be debated with such bombast that few will know more on election day than they do now.

Already, under the deregulation plan adopted by unanimous votes of the Legislature in 1996, there have been some unexpected price spikes. The cost of backup power in California soared briefly during heat waves this July to as high as 2,000 times normal. (In another incident in June in a Midwest deregulatory case, prices briefly reached 20 times normal).

These episodes show that developing a commodities market in electricity is going to take fine tuning, perhaps protracted, to be sure we get the promised decreases and not some astounding increases.

So maybe this is not the time for more follow-up legislation, especially from a governor who craves major new initiatives in the five months left to him in office.

Deregulation is a concept much in vogue nowadays. But often it doesn’t go as expected.

In order to work, it often requires some continued regulation.

So, when the Federal Energy Regulatory Commission eliminated the price caps on sales by electricity generating companies, only to see the alarming price spikes, it quickly restored the caps.

I went to see Harvey Rosenfield, the consumer advocate who has put forward other consumer initiatives besides Proposition 9, and Stephen E. Frank, president of Southern California Edison, which lobbied so effectively for deregulation.

Rosenfield, whether dealing with the insurance industry, HMOs or utilities, often indulges in sweeping condemnations of powerful business interests. It’s as much a part of his persona as not wearing a tie.

“Deregulation is sending us back to the Wild West,” he said colorfully, adding that the enabling act by the Legislature will allow Edison to pay off its bad nuclear power investments, which is why his Proposition 9 also would prohibit use of ratepayers’ funds for that purpose. Also, according to Rosenfield, the mandated 10% reduction in electric rates for four years is a fraud.

Frank called the lobbying effort collaborative, involving many compromises. The 10% rate reduction is real, he said. So far, despite the price spikes, the market is developing satisfactorily, he believes.

Frank also said politely he thinks Rosenfield is sincere.

The utilities’ campaign people, however, are not going to be so restrained. They’re already claiming, with unsure proof, that the taxpayers will have to cough up billions to pay off bonds now in power bills, if the initiative passes.

As it happens, I covered Rosenfield’s first initiative, Proposition 103, in 1988 for The Times. I naively believed then that if California voters approved it, the insurance industry would yield and massive reform would be assured.

Instead, the industry proved stubborn and resilient. It has succeeded over 10 years in mostly litigating the reforms to a standstill, and the elected office of insurance commissioner the measure set up came to be occupied by an industry sympathizer.

In short, the California initiative process has its limitations.

My concern about Proposition 9 is that if adopted, we would be in for another years-long siege of litigation, the reforms would not, for the most part, take place, and California’s chances of attracting new entrepreneurs in power generation would be impeded severely, jeopardizing our energy future.

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As for the promise in Proposition 9 to reduce electricity bills by 20%, there was a similar pledge in Proposition 103 on insurance.

But the people cannot, with impunity, vote themselves a 10-cent hot dog. In Proposition 103, the state Supreme Court quickly ruled that the insurers were entitled to a fair return, and that became a subject of litigation that has not ended yet.

It probably would be the same with Proposition 9. So I’m skeptical about it.

But I’m also wary of deregulatory follow-up legislation in which Edison, Gov. Pete Wilson and a few sly state senators, such as Steve Peace (D-El Cajon) and Charles M. Calderon (D-Montebello), have been working to get the Legislature to cut the regulatory authority of the Public Utilities Commission.

The PUC, in the time-honored tradition of state agencies protecting their own turf, has been fighting this behind the scenes.

Its president, Richard Bilas, declares, “We need further study. I don’t have a problem with changing the process at the PUC. I do have a problem with changing it before all the responsible parties can think this through.”

Commissioner Jessie Knight Jr. said the proposal is “one step along the path toward . . . taking control of the PUC.”

What Gov. Wilson is doing, he said, “might be done later, once we have full competition. . . . A four-year transition is necessary first.”

The governor’s chief of staff, George Dunn, said he knows Wilson’s push is being greeted with “horror” by his own appointees, including Bilas and Knight.

But, he said, one complaint is that the commission shows little predictability and is “somewhat volatile on occasion.”

Dunn said last week that he has held a meeting with commissioners and “we are working with them on language that is appropriate to a resolution of these issues.”

Maybe so, but when Peace and Calderon are involved, there have been some big surprises in what is done in the last night of the legislative session.

Bilas and Knight may never think the time is ripe for change. But deregulation, or restructuring, is just starting, and it may well be better to let the next governor have his say.

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Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060, or by e-mail at ken.reich@latimes.com.