Deregulation Redux

Stop us if you’ve heard this one before. Some politicians in Sacramento are arguing that California should deregulate its electricity grid to give the economy a boost. This time, Gov. Arnold Schwarzenegger is leading the deregulatory charge and, like his predecessor, he risks getting a bad shock if Sacramento fouls up again.

Sacramento needs to restructure the regulatory system patched together during the state energy crisis of 2000 and 2001. But elected officials must not forget that there are solid reasons for keeping much of the electricity grid heavily regulated. Californians can’t afford to depend on what a consumer activist calls “faith-based regulation,” meaning leaving it to the free market to sort it all out.

California recently set records for daily electricity consumption, and overall demand is growing at a 2% annual clip. Some steps are being taken to keep the lights burning. Regulated utilities must produce 20% of their power by 2010 from renewables, including wind and biomass, and the state’s battle plan calls for conservation to be increased. Some new power plants have opened and a handful of others are in the pipeline. But although additional plants will still be needed, regulated utilities and independent power generators won’t build them unless the state eliminates financial uncertainties caused by its flawed regulations. And, without a real fix, California risks another crisis well before the decade ends.

Reform proposals abound. Southern California Edison seeks to guarantee that its profits won’t suffer if customers are allowed to shift to independent energy providers. Those providers are lobbying for a wider-open market that suits their bottom-line interests. Big businesses that use lots of power want the right to choose their service providers. Consumer activists caution that residential rates will soar if these giants get their way.

Look past the special interests and the issues fall into two categories. The first involves whether regulated utilities or independent power companies -- or both -- will build future power plants. Sacramento should craft rules that create a fair situation so both utilities and independents are encouraged to build. Otherwise, customers won’t get the best rates and service possible. The second issue -- whether utility customers should be allowed to choose their service providers -- should be delayed until after more power plants are under construction.

AB 2006, introduced by Assembly Speaker Fabian Nunez (D-Los Angeles), is a step in that direction. It would end some of the uncertainty that is keeping new plants from being built. But the bill lacks what Schwarzenegger dearly wants, a deregulation plan that allows big businesses to choose their electricity provider. Nunez expects legislators to pass his bill before the session ends Aug. 31. The governor’s people have all but said it would be vetoed. Frustrated consumer groups already are threatening to offer a state ballot measure that would declare deregulation off limits.

Legislators should pass AB 2006. Rather than simply threatening a veto, the governor should work with them to determine if it’s really possible to let businesses choose their service providers without unfairly saddling consumers and smaller businesses with higher bills. It will take tough firewalls, not market faith, to ensure that California doesn’t face another meltdown.

This complicated issue doesn’t belong on a ballot measure. It’s questionable, though, whether legislators and the governor can find a sensible solution during the coming days -- particularly because Nunez has had no recent direct contact with the governor. Whatever happens, Sacramento’s first responsibility should be ensuring that small businesses and residential customers don’t get left in the dark.