Energy Measures Set on Collision Course

Two bills offering very different visions of California’s electricity future have put the Legislature at a crossroads.

One bill tries to turn back the clock on deregulation. The second would build on the current hybrid mix of private power plants and regulated utilities.

A showdown looms in the Legislature, where lawmakers have left the shape of California’s electricity industry to happenstance since trying -- and failing miserably -- to create a deregulated power market in 1996.

“It’s a clash of ideologies,” said Matt Freedman, senior attorney for the Utility Reform Network, a San Francisco consumer group.

California’s power market worked for a couple of years, but it collapsed between May 2000 and June 2001. Prices spiked, blackouts threatened and private utilities spent billions of dollars buying electricity until the state intervened as a surrogate utility.

The experience soured many political leaders on deregulation, including Sen. Joe Dunn (D-Santa Ana), who has led investigations of alleged price manipulation by energy companies. Dunn has introduced SB 888 to re-regulate the state’s private utilities, making them responsible once again for building new power plants and transmission lines. Dunn named the bill in tongue-in-cheek honor of Order 888, a 1996 Federal Energy Regulatory Commission decision that opened the door to deregulation by forcing utilities to let competitors use their transmission lines.

“When it comes to deregulation, we’re not mending it,” said Dunn. “We’re ending it.”

Meanwhile, Assemblyman Keith Richman (R-Northridge) offers an alternative more to the liking of private energy companies and big business. His bill, AB 428, would encourage businesses, starting in 2006, to sign contracts with private electricity suppliers. Being able to choose an electricity seller other than the local utility was a key feature of California’s original deregulation plan. But state regulators banned the signing of new contracts in September 2001.

Few household customers took advantage of this choice, called direct access. It was more popular with medium-sized and large businesses, some of which cut deals for cheaper electricity with private companies such as Green Mountain Energy and New West Energy. Roughly 13% of the demand for electricity in the territories of Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric is now being served by companies other than the utilities.

Dunn’s bill would force those businesses to return to their utilities when their contracts end. But Richman’s bill would do essentially the opposite, allowing businesses that use a peak of 500 kilowatts or more -- roughly the size of a large grocery store -- to sign their own electricity deals.

There’s one thing on which both Richman and Dunn agree: California needs more power plants.

Several state agencies recently estimated that California should add 1,500 to 2,000 megawatts a year -- the capacity of a couple of large power plants -- to meet anticipated demand. Many power plants planned for construction in 2001 were canceled as the energy industry struggles with stagnant prices, allegations of trading abuses and the reluctance of banks to lend money.

Each lawmaker believes he has the right legislation to create stability and draw investment.

Richman points out that under deregulation, California’s utilities sold off their natural gas-fired power plants. They are now owned by companies such as Reliant Energy and Mirant Corp.

“After all the changes that have gone on,” said Richman, “it is next to impossible to return to regulation.”

Said Dunn: “Keith is trying to provide them with some stability through the direct-access method, but if we turn the energy ship and turn it 180 degrees -- which is what we’re doing with SB 888 -- there is no longer a need for direct access.”

Private power producers oppose SB 888, saying it will disrupt recent progress, but consumer groups support it. PG&E;, the state’s largest utility, supports Richman’s bill with some amendments, but consumer groups oppose it.

Both bills are scheduled for committee hearings later this month.