Utility Solution Must Be a Joint Effort

The Greenlining Institute, a coalition of minority and low-income groups, defended the deregulation of electric utilities two years ago, when some other consumer groups tried to pass an initiative repealing it.

No more. “We made a mistake,” said the institute’s policy director, Robert L. Gnaizda, as a parade of witnesses he organized called on the state’s Public Utilities Commission to impose a freeze on all energy prices for at least two years and a permanent freeze for senior citizens and low-income families.

The institute also proposes “a freeze on all utility campaign contributions until the energy crisis is resolved.”

Such contributions eased the way for the Legislature’s unanimous adoption of deregulation in 1996. Utility money also crushed the initiative campaign to roll back deregulation led by Harvey Rosenfield in 1998.

The Greenlining Institute’s proposals face a steep uphill climb. Although the Legislature may consider tax credits for poor people paying high prices for electricity and natural gas, if prices rise, I imagine most consumers will end up paying the bills.

The largest electric utilities, Southern California Edison and Pacific Gas & Electric, which now are under a rate freeze until early 2002, have already appealed to the commission to allow them to recover $5 billion they claim they have lost because their rates are frozen while they must purchase electricity in the wild free market. If no such reimbursement by ratepayers is approved, they could turn to the courts for redress.

At the PUC last week, it was evident that deregulation, at least in electricity, has become a dirty word, and not only with consumers.

Efforts are underway to keep it from becoming a nasty political issue that could endanger the utilities’ future, not to mention the reelection bid of Gov. Gray Davis in 2002, and no one is more in the forefront of these than Edison.

Bob Foster, Edison’s senior VP for government relations, laid out the utility’s desires last week.

First, he said, it’s necessary to “fix the market,” to control the high prices charged by the generating companies and marketers, who the backers of deregulation once told us would, through competition, actually lower prices.

Second, Foster said, Edison hopes for stable rates, avoiding the sudden sharp increases that set off a political firestorm in San Diego after the freeze of San Diego Gas and Electric rates was lifted.

Foster suggested the best way to do this is for the PUC, the utilities and the consumer groups “to get together by the end of the year to agree on a new framework for developing a reasonable and predictable price” for electricity.

Doing this so neatly, leaving it to the experts, rather than to the unruly world of state politics, may be too much to hope for, especially because, like King Canute, we cannot hold back the tide. World energy price increases may overwhelm us.

But there may be hope in the Federal Energy Regulatory Commission, which seems likely to act in some way to restrain wholesale electricity prices by New Year’s.

It has called a Nov. 1 meeting to discuss remedies. That will be followed by three weeks for public comment, and then, it declares, “the commission anticipates issuing . . . an order . . . directing remedies (to the extent those remedies are within our jurisdiction) to promptly address to the extent possible the identified problems adversely affecting competitive power markets in California.”

Some caveats, but Davis seems to be counting on federal intervention. His press secretary, Steve Maviglio, noted this week that the governor “has been very pointed in criticizing the out-of-state generators for price gouging, and he has pleaded with President Clinton and FERC [the energy regulatory commission] . . . to [set] price caps.”

It sounds wonderful. The consumers, the utilities, the governor, are all trying to control the marketers that deregulation foisted on us all.

However, they have their point of view, too. They assert that if California holds prices down, it will discourage development of new power generation capacity and increase the shortages already projected for the near future.

For instance, Gary Ackerman, executive director of the Western Power Trading Forum, an association of marketers, declares:

“You cannot step around market realities. If you try . . . you will end up with shortages.”

And Tom Williams of Duke Energy North America, a generator, warns, “There is already a supply problem throughout the West. We think if there are price caps, they need to be temporary. With any price cap there must be adequate incentives for new generation, to fix the supply problem. Otherwise, things will run off the tracks.”

One answer may be long-term contracts, under which the utilities could buy power at a set price for years, rather than rely on the volatile spot market.

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This could lessen price increases, and may soon be facilitated by the PUC. But some utilities are wary because they imagine that, by unexpected twists, the price might turn downward at some point, and they’d be stuck with the embarrassment of being tied to higher-priced long-term contracts.

So where are those of us who simply flip a switch and expect the lights to come on? I’d guess that whatever is done, deregulation will be replaced with quite a bit of new regulation lasting a long time.

Maybe the details will be solved by FERC or by an agreement among consumers, utilities and the PUC that Foster would like. But I suspect it will end up in the Legislature and the governor’s office regardless. There, the generators and marketers, too, will be making their own heavy contributions.

It’s wise to be cautious. As Jan Smutney-Jones, executive director of the Independent Energy Producers, observes, “The only certainty about forecasts is that they’re wrong.” They certainly were when we were assured so blithely by then-Gov. Pete Wilson when he signed the deregulation bill four years ago that it would bring lower prices for all.

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