With memories of California’s millennial energy meltdown fading, a top utility regulator and some businesses are maneuvering to resurrect a key element of the state’s infamous electricity deregulation law.
That effort -- and fears about fiddling with the state’s delicate power grid -- are sure to amp up political tensions between the constitutionally independent California Public Utilities Commission and the Democrat-controlled state Legislature.
Led by its president, Michael Peevey, the commission is exploring ways to lift a freeze on a program that allows residential and large power users, including big-box stores, cement plants and universities, to shop around to get the best price for electricity.
“I do believe that people ought to have choice,” said Peevey, who was just appointed by Gov. Arnold Schwarzenegger to a second term as commission president. “Why is it that in this particular instance people seem cool to the idea of choice but like it in everything else they buy, from phones to cars?”
Deregulation advocates, who persuaded lawmakers in 1996 to revamp the way electricity was generated, distributed and marketed, tout “direct access” as a way to lower energy costs and break historical monopolies held by Edison International’s Southern California Edison Co. and other big utilities.
“The savings are extremely significant,” said George Waidelich, vice president for energy operations at Safeway Stores Inc. The Pleasanton, Calif., supermarket chain still purchases electricity in bulk for more than 400 of its California locations. The company started buying power from unregulated, non-utility “electric service providers” in 1998 and has been allowed to continue doing so even after the Legislature suspended direct access for new participants in 2001 during the depths of the market meltdown.
Opponents say they are willing to coexist with the remnants of the direct-access market, which accounts for about a tenth of the state’s electricity consumption, down from a high of 16% in 2000. But they are adamant about not allowing the Public Utilities Commission to expand it unilaterally, without full debate and approval from the Legislature.
“We think this is an awful time to experiment with a system that proved to be a colossal failure last time,” said Mark Toney, executive director of the Utility Reform Network, a San Francisco-based consumer group that advocates for ratepayers.
Keeping electricity available and affordable is too much a “life-and-death kind of issue” to leave its delivery and pricing up to the free market and susceptible to possible manipulation by unscrupulous generators, he said. “Not having power in your house is a lot more serious than your cable going down for an hour or a cellphone call dropping.”
Retail electricity prices in deregulated states have risen by as much as 56% more than in regulated states since 1999, Toney said, citing a February report by Power in the Public Interest, a consumer organization based in Olympia, Wash.
Peevey and other direct-access proponents dispute the price figures and argue that retail competition should drive down rates, even at state-regulated utilities and municipal providers such as the Los Angeles Department of Water and Power.
Retail choice, they contend, didn’t play a significant role in causing the 2000-01 energy crisis, which sent electricity prices soaring in California and other Western states, bankrupted a major utility and caused rolling blackouts through the stressed transmission grid.
“The folks who are opposed to this are throwing up all kinds of scary stuff,” said Dorothy Rothrock, an energy expert with the California Manufacturers and Technology Assn. “This isn’t about the energy crisis. It’s about customers having the ability to choose their energy provider and has nothing to do with wholesale price manipulation.”
Bringing back direct access is a complex legal task that began more than a year ago. The biggest impediment is more than two dozen expensive power-purchase contracts signed by the state in 2001 to help end the crisis. According to state law, no expansion of retail competition for electricity can occur before the last contract expires, sometime between 2015 and 2017.
But Peevey and the other commissioners don’t want to wait that long. Instead, they voted unanimously on Nov. 21 to set a January 2010 goal for shifting legal responsibility for the contracts from the state to California’s three regulated, investor-owned utilities: Edison, Sempra Energy’s San Diego Gas & Electric Co. and PG&E; Corp.'s Pacific Gas & Electric Co.
The utilities aren’t enthusiastic about taking over the contracts. Edison currently draws power from six state contracts that meet the needs of about 2.9 million homes in Southern California.
“Replacing existing contracts between wholesale power sellers and the state with new contracts between those sellers and the state’s utilities will require demanding negotiations,” the Rosemead utility said in a statement. “Ultimately, it may not be possible for the counterparties to arrive at terms each considers constructive.”
Edison said it worried that its ratepayers could be hit with new costs not borne by customers of unregulated energy sellers. The company wants all energy providers to meet expensive state energy efficiency and renewable generation standards, just as the regulated utilities must.
Reinstituting retail competition is too big a job for Peevey to do on his own, insists state Sen. Christine Kehoe (D-San Diego), the outgoing chairwoman of the Energy, Utilities and Communications Committee.
“Mr. Peevey is kind of putting the PUC on a collision course with the Legislature,” she warned. “We need to make sure that the ratepayers and electricity consumers in California, all of them, are getting a fair deal.”
Lawmakers rightfully “are paranoid” about changing the state’s electrical system but have learned much from the mistakes made during the energy crisis, said Dirk A. Van Ulden, the associate director of energy and utilities for the University of California campuses.
The UC system, which saved more than $30 million over the last decade by buying some of its power directly from generators, is eager to see the suspension on full competition lifted, he said.
“It gives us options,” Van Ulden said. “We don’t want to be completely dependent on utilities.”