State Senate Panel Backs Bill for Energy Revamp

A bill aimed at heading off another energy crisis by once again revamping California’s electricity grid received a cautious boost Tuesday from a key Senate panel.

The measure -- sponsored by Assembly Speaker Fabian Nunez (D-Los Angeles) with the strong backing of Edison International -- is shaping up to be the most important overhaul of the state’s power system since the now infamous deregulation law of 1996.

The bill attempts to resolve two conflicts: one pitting investor-owned utilities against independent power-generating companies and another setting big commercial and industrial electricity users against consumer groups.

The bill would allow investor-owned utilities like Edison’s Southern California Edison Co. and Sempra Energy’s San Diego Gas & Electric Co. to build and operate power plants and would guarantee that they could recover at least their initial construction costs from customers. It also tries to satisfy large electricity users, such as computer chip manufacturers and steel mills, by allowing them under limited conditions to purchase power on a wholesale market, off of the utilities’ networks.

Analysts say they expect negotiations over the bill to be the focus of Gov. Arnold Schwarzenegger’s attention when he turns, in the final weeks of the legislative session in late August, to fixing California’s unreliable and costly system for generating and distributing electricity.

Schwarzenegger, though he hasn’t taken a stance on the bill, appears to be leaning toward even more of a free-market approach than proposed by Nunez’s bill. In April he wrote a letter to the California Public Utilities Commission indicating that he favored increased competition among all types of generators and creation of an active wholesale electricity market.

The bill remains a work in progress. After numerous amendments Tuesday, it cleared the Senate Energy, Utilities and Communications Committee on a 5-2 vote.

“We have a lot to do,” said committee Chairwoman Debra Bowen (D-Marina del Rey). The bill will be brought back to the panel for a final vote, probably in August, before being taken up by the full Senate. It already has cleared the Assembly.

The bill has sparked a battle between Edison and San Jose-based Calpine Corp. The two have been bombarding each other on the public relations front, running full-page advertisements in newspapers.

Edison says it’s pushing to rejigger the state’s network of power plants, conservation programs and renewable energy facilities “to protect California consumers and our system of electric service from ever being victimized again by an out-of-control electricity market.”

Calpine, in turn, is blasting Edison and the utilities for writing a bill that would give them “a blank check” to hit ratepayers to recover massive cost overruns on costly power plant projects.

Large businesses, which are allied with Calpine and other independent power producers, are eager to cut their costs, which are running 88% above the national average, by buying long-term electricity contracts on the open market. “The bottom line for us as an industrial customer is the cost of energy,” said Jack Stewart, president of the California Manufacturers and Technology Assn.

Consumer groups fear that even partial deregulation and free-market pricing can shift a disproportionate amount of costs from wholesale buyers to residential and small-business customers.

“We don’t believe you can create a deregulated system that can protect consumers,” said Doug Heller, executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “Deregulation and electricity just don’t mix.”