Davis Seeks Price Ceiling on Soaring Electricity Rates

Trying to tame the electricity price spikes jolting California this summer, Gov. Gray Davis on Thursday urged federal and state agencies to lock in price caps and swiftly approve the rebate of $100 million to residents of San Diego and southern Orange counties, where the typical electricity bill has doubled in the past month.

Four years into the state’s experiment with deregulation, Davis called the current situation “unjust and totally unacceptable” and said there is not yet sufficient competition among electricity suppliers to strip away regulation without hurting consumers.

“When California deregulated the electricity market in 1996, consumers were promised that competition in the marketplace would be enough to ensure stable, if not reduced, prices,” the governor said in a written statement. “That is clearly not the case in California. The result is uncontrolled price spikes with no end in sight.”

Electricity costs typically rise in the summer along with demand, mostly for air conditioning. But the situation is acute in California this summer because, although the population is growing--along with a dependence on electronic gadgetry--no new major power plants have been built in the state in the last 10 years.

Frustration has been especially high in San Diego County, where small-business owners say rising electricity costs are eroding their profits.

Davis noted that deregulation gives California’s governor little authority to control the price or supply of electricity. But he released four letters he sent Thursday to various agencies that oversee California’s electricity market, hoping to influence the Federal Energy Regulatory Commission. That body ultimately regulates the transmission and sale of electricity to utilities.

The governor’s move garnered praise from state Sen. Steve Peace (D-El Cajon), who masterminded the 1996 bill that launched deregulation.

“He’s taking this in deliberate, professional steps,” Peace said. Peace’s constituents are among the first to feel the full effects of deregulation because San Diego Gas & Electric Co. was the first of California’s three big investor-owned utilities to sell off its “stranded costs,” such as investments in nuclear power plants, thereby freeing itself of a rate freeze imposed by the Legislature in 1996.

Within a year and a half, Southern California Edison and Pacific Gas & Electric Co., which serve much of the rest of the state, are expected to be lifted from that rate freeze. Then the utilities will be free to pass on the wholesale cost of electricity to customers, as is happening now in San Diego, where some homeowners are getting monthly bills of $100 and more.

On Thursday, Davis asked Public Utilities Commission President Loretta Lynch to clear the way at its meeting Aug. 3 to allow SDG&E; to refund $100 million to ratepayers.

SDG&E; collected that money by selling electricity from its San Onofre nuclear power plant, and would typically wait until the end of the year to cut checks and disburse the fund back to ratepayers. The utility seeks to give the money back now to help ease the financial pain of skyrocketing bills.

SDG&E; also seeks to give back to consumers in August $390 million from bonds they floated as part of the 1996 deregulation law. That money would normally be given back to SDG&E;’s 1.2 million customers over eight years.

The combined rebates, if approved, would mean that the typical homeowner would earn $300 in August and September from SDG&E;, said Doug Kline, a spokesman for the utility.

“We heartily endorse the governor’s call to action here,” Kline said. “We agree that the problems with California’s deregulated energy marketplace are centered in the wholesale electricity market and that’s where the fix needs to be implemented.”

Davis called on the nonprofit group that oversees the buying and selling of 80% of the electricity used in California to impose a price cap. He also urged that the current $500 per megawatt-hour cap on electricity purchased on an emergency basis, on hot days when soaring demand threatens to trigger blackouts, be dropped to “the lowest reasonable level.”

Davis didn’t specify a lower price, but the board that oversees the spot market for such emergency supplies is expected to vote Aug. 1 to drop the price cap to $250 per megawatt-hour. The vote that day will be the board’s third this summer; twice before, it narrowly refused to drop the cap to $250 per megawatt hour.

Peace said a lower price cap is critical, because the price in the emergency market influences the price for electricity overall.

For example, said Peace, the price of electricity scheduled a day or more ahead was 40% lower on July 20, when the spot-market price cap was $500 per megawatt-hour, than it was on June 28, when the price cap stood at $750 per megawatt-hour.

“It sounds like the governor is on the right track,” Peace said. “In a nutshell he’s saying that until we get a workably competitive market, we have to put in price caps, because the people of California can’t afford to have their electric bills jump. This whole deregulation idea was designed to reduce prices. It’s going to take awhile.”

Jan Smutny-Jones, who chairs the board of the California Integrated System Operator, which oversees the emergency market for electricity in California, said he believes the market is fairly competitive.

The bigger problem, said Smutny-Jones, is a scarcity of electricity up and down the high-voltage grid that connects the Western states.

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