Electricity Deregulation a Shock to the System

While California’s power grid successfully sweated through a fourth day of thin supplies without blackouts Thursday, state regulators denied an emergency appeal to freeze rates for price-shocked electricity users and President Clinton ordered federal agencies to send as much power as possible to the state.

The California Public Utilities Commission approved a series of measures designed to rein in wild electricity prices in California but stopped short of freezing and rolling back rates for electricity customers of San Diego Gas & Electric, the first consumers in the country to pay market prices for electricity. Consumer groups and San Diego politicians bitterly criticized the PUC commissioners, saying that their actions didn’t go far enough and vowing to seek legislative relief.

In addition, Clinton ordered federal facilities in the state to use as little electricity as possible.

U.S. energy regulators assured Gov. Gray Davis that they are ready to fix problems with the state’s deregulating electricity markets, which have seen prices soar and supplies dwindle during the summer heat.

But Federal Energy Regulatory Commission Chairman James J. Hoecker, who promised his help in a letter to Davis, did not outline any specific action. The commission is investigating possible irregularities in the wholesale power markets, including California’s, but a report is not expected for nearly three months.

John Bryson, chief executive of Edison International, parent of Southern California Edison, said price spikes are expected in a competitive market, but he is disturbed that prices on the California Power Exchange, the state’s primary power market, have been unusually high this year even during periods of low demand.

“We can’t think of any reason in a competitive market why this would take place,” Bryson said in an interview. “We think it is appropriate for the [Federal Energy Regulatory Commission] and the state attorney general to look into it.” California Atty. Gen. Bill Lockyer on Wednesday expanded a weeks-old investigation into power markets.

Electricity use was high again Thursday, peaking at 43,018 megawatts in late afternoon. The California Independent System Operator, or Cal-ISO, which runs most of the electricity grid in the state, declared a moderate Stage 2 emergency at 2 p.m. after a mechanical failure at a Northern California power plant pulled 400 megawatts of generation--enough to supply 400,000 homes--from the system.

A Stage 2 is declared when electricity reserves fall below 5%. Southern California Edison and the other big investor-owned utilities usually are directed to interrupt power to some commercial and industrial customers that get discounted rates in exchange for agreeing to power cuts when supplies are low.

But for the first time this week, supplies were sufficient Thursday so that Cal-ISO did not have to order power interruptions, spokesman Patrick Dorinson said. When reserves dip below 1.5%, a Stage 3 emergency is declared and rolling blackouts become likely.

In declining to impose a retail rate freeze, the five appointed PUC commissioners cited possible legal constraints and fears of even higher winter bills. They agreed to study the issue and hold hearings. Instead, the commission ordered nearly $500 million in accelerated rebates and an expansion of a program that allows San Diego customers to level out payments over an entire year with a potential final balloon payment at the end of 12 months.

The commission also gave utilities permission to look for cheaper power outside the state’s formal electricity market for the first time, and approved several conservation and supply-promoting measures.

A delegation of consumer advocates and San Diego politicians, seated at the front of an overflowing auditorium at PUC headquarters in San Francisco, denounced the commission’s actions.

“They said, ‘We feel your pain, here’s a Band-Aid,’ ” said Michael Shames, executive director of the Utility Consumers Action Network, the San Diego-based group that filed the emergency petition for a rate freeze and rollback.

Shames acknowledged that the PUC did provide needed breathing room for businesses and consumers by forbidding SDG&E; to shut off any customer’s power for not paying the electricity bill.

Of the expanded level-payment plan that the PUC ordered, consumer advocate Harvey Rosenfield said: “We call that: Pay more now and pay even more later.”

“The PUC just tossed the bomb into the laps of the Legislature, and next week it’s going to explode” when hearings are held on the issue, said Rosenfield, president of the Foundation for Taxpayer and Consumer Rights.

State Sen. Dede Alpert (D-Coronado) said she will introduce emergency legislation next week, once the Legislature returns from its summer recess, to roll back and freeze rates for SDG&E; customers to levels of July 1, 1999. That was when the PUC allowed the utility to remove its rate freeze because it had paid off its deregulation-related debts. Customers in the territories of Southern California Edison and Pacific Gas & Electric are still protected by the rate freeze.

San Diego Gas & Electric, which in the restructured electricity industry is primarily a distributor of electricity, said the PUC “took the right course of action.”

“While the rate freeze before them looked attractive on the surface, it would only have delayed the impact of higher electricity prices,” spokesman Doug Kline said. SDG&E; and the other utilities have sold most of their power plants as required under deregulation and now merely pass along to customers the wholesale price of electricity as established on the California Power Exchange.

Bryson of Edison International applauded the new authority given to Edison and Pacific Gas & Electric to make deals outside the Power Exchange, which will allow the utility to smooth price spikes. The PUC also allowed Edison to sign up new customers for its power-interruption program and some conservation programs, which had been closed.

In response to the continuing energy crisis, Clinton said: “As one of the largest power consumers in California, it is critical that the federal government take every possible step to reduce nonessential power consumption at federal facilities in the state.”

“We’re reducing electricity in federal facilities by 5%,” U.S. Department of Energy Secretary Bill Richardson said in an interview. The secretary said that is enough to power 500,000 homes.

The government also is taking steps to increase the supply of power in California.

“I’ve directed our federal power entities like the Bonneville Power Administration up in Oregon and Washington and our national dams to send electricity to California,” Richardson said.