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Assembly OKs Bill to Deregulate Electricity

Utilities: Legislation promises to end monopolies and provide an immediate 10% rate cut. But critics are sounding warnings.


SACRAMENTO — As some of the state's largest industries mount the year's most intense lobbying effort, the Assembly on Friday approved legislation that would transform how Californians buy electricity. A final vote in the Senate is expected to take place today.

Working with many of the Capitol's highest-priced lobbyists and most-powerful interests, state Sen. Steve Peace (D-El Cajon) has put together a phone book-size bill.

It seeks to deregulate the electrical industry, phase out monopolies held by California's three largest utilities, open the delivery of electricity to competition and give rate cuts of up to 20% to homeowners and renters.

The proposal is likened to telephone deregulation in its scope. But Peace, along with Democratic and Republican lawmakers who helped fashion it, insists that the bill offers protections for small consumers that were not part of laws that opened the telephone industry to competition.

"It's our effort to protect California consumers and businesses from the dislocation that occurred in telephone deregulation," Peace said.

The bill has been the focus of the largest lobbying effort of the year, possibly of the 1990s. Public reports detailing the magnitude of the effort won't be filed for several months. But in the first half of 1996, the three utilities spent a combined $1.5 million on lobbying. The firms also gave a combined $300,000 during the first half of the year in campaign donations, plus additional sums for letter-writing campaigns.

"This is probably the most important bill [for Edison] in the last decade, if not the last few decades," said Robert Foster, the Southern California Edison vice president who oversaw the lobbying effort. "We put resources commensurate with the task."


While Peace and its advocates say the bill will lower costs, some experts are sounding warnings, and are critical of provisions inserted specially for groups with a stake in electrical deregulation.

"The whole thing is a shot in the dark," said Lenny Goldberg, representing the consumer group Toward Utility Rate Normalization, which is neutral on the bill.

The deregulation proposal, contained in Assembly Bill 1890, makes two basic promises:

* First, utilities can recoup from ratepayers money for various bad investments, chiefly nuclear power plants. Altogether, the bad investments amount to $28.5 billion.

Customers already pay for the bad investments as part of their monthly bills. But proponents of AB 1890 say they cut $9 billion from what the California Public Utilities Commission had granted to the utilities to retire such costs.

Some critics contend that customers are being asked to bail out utilities, and that the $28.5 billion amounts to a tax.

Lawmakers could have refused to let the utilities recover the costs. But they reasoned that, over the decades, government encouraged the utilities to embark on projects, including nuclear energy, that proved to be money-losers. It is now unfair, they say, to penalize the companies for complying with those orders.

"We did make a decision--we didn't want to bankrupt [the utilities]," said Assemblyman Jim Brulte (R-Rancho Cucamonga), one of the bill's main authors.

Brulte distributed a letter from an anti-tax group declaring that the $28.5 billion being passed along to ratepayers "resembles a regulatory tariff," not a tax or a fee.

* The second provision is that California's three major private utilities--Southern California Edison, San Diego Gas & Electric, and Pacific Gas & Electric--must cut electric rates by 10% for residential and small commercial customers by 1998.

The rate cut will be funded by a new type of bond created by the legislation. The state and utilities will use the bonds to refinance part of the utilities' debt, allowing for the 1998 rate reductions. The bonds will be repaid over 10 years from utility bills.

Such a financing plan has never been attempted. But Peace and other lawmakers insist it will work. He and proponents also say the bill guarantees a second 10% rate cut in 2002, after the bulk of the utilities' $28.5 billion in bad investments are paid off.

"We're going to be watching the utilities like a hawk to make sure they implement the rate cuts," said Assemblywoman Diane Martinez (D-Monterey Park), another supporter.

The bill focuses on private utilities, not municipal utility districts such as the Los Angeles Department of Water and Power.


Although the bill is massive, the public process leading up to today's vote was unusually swift. One of the hardest-driving members of the Legislature, Peace commenced hearings in a joint Assembly-Senate conference committee Aug. 5.

Peace met into the early morning hours and over weekends. Lobbyists likened Peace to a drill sergeant as he shepherded the complex legislation through the committee.

Despite the bill's magnitude, it faces surprisingly little opposition. Already, 72 of the Legislature's 118 sitting lawmakers have endorsed the bill, and Gov. Pete Wilson likely will sign it.

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