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PUC Opens State to Competition for Energy Customers

Business: The decision allows an unrestricted market on Jan. 1, five years earlier than expected. Savings are anticipated as consumers choose their own utility.


In a decision that hands nearly all Californians the option to choose their own source of electric power by year's end, the state Public Utilities Commission on Tuesday voted unanimously to throw open the state's electricity market to competition up to five years sooner than expected.

The decision is likely to touch off a statewide marketing blitz as companies from Houston, Seattle, Charlotte and other cities descend on the nation's biggest market to fight over customers who spend $20 billion a year on electricity.

California--burdened by electricity prices 50% above the national average--is the first state to legislate an unrestricted power market. Competition is intended to produce savings as residents, businesses and even entire cities band together to buy electricity in large volumes and command lower rates.

California's deregulation law passed last summer mandates a 10% across-the-board rate cut Jan. 1. But additional savings are anticipated over time, with big customers like factories and retail chains winning discounts first.

In moving so quickly to open up the state to competition, the PUC sharply accelerated the timetable envisioned by state legislators who set deregulation in motion last year with the passage of AB 1890. The Legislature envisioned a phased-in process whereby 15% to 25% of the power customers per year would be able to pick their power suppliers starting Jan. 1.

But the PUC feared that a phased-in program would be unfair and difficult to administer, and concluded that there was no good reason against opening the market up all at once.

"It became clear during the hearings process that there were no significant impediments, there were no technological barriers to begin direct access all at once," said Douglas Long, PUC manager of electric restructure.

The PUC ruling does not apply to municipal utilities such as the Los Angeles Department of Water and Power, but competitive realities are expected to force those utilities to enter the free market fray. The 1.3-million-customer DWP favors opening up its customer base to competition, but the decision is up to the Los Angeles City Council.

Pasadena, Burbank, Anaheim and Riverside also are served by municipal utilities.

Consumers are under no obligation to make a change: Public utilities long accustomed to monopoly status will be marketing just as hard as their new competitors to keep customers in the fold.

Moreover, most residential customers will have to join groups to fully realize the benefits of lower rates. Companies called "aggregators" will try to get residents and businesses to form buyer groups, something that has already happened with some businesses, government entities and hospitals that are buying their own power.

Tuesday's vote gives power companies permission to begin marketing directly to residential and small business customers July 1, although general advertising could begin immediately. In short, a no-holds-barred competition for California's huge market will soon be underway. But the PUC urged the public to take its time.

The vote sets a Nov. 1 start date on which electricity customers may opt out of their local electric utility and choose another company that might offer a better deal. Service from the providers would start no sooner than Jan. 1.

"There is no need for consumers to rush into anything. There is a timetable set up with a few months in between to figure out what's going on," said Linda Serizawa, a PUC analyst.

Residential customers will probably have no direct contact with power sales agents until July 1, the date when the energy providers may begin registering with the PUC to sell energy. But companies such as Enron Corp. and Southern Co. of Atlanta have begun to market their brands statewide in television and newspaper advertisements.

Standing to benefit most are major industrial and commercial power users who are likely to be offered big discounts to switch. But the PUC made clear Tuesday that it wants residential ratepayers to participate in the free market as well.

To protect consumers from "slamming," or the practice of throwing ratepayers into marketing groups without their knowledge, the PUC is requiring all prospective outside power providers to register with the state. Also, a series of education programs under PUC supervision will begin in September to inform customers what they have to gain or lose by buying power from marketers, the PUC's Serizawa said.

Power marketers--companies that have sprung up to buy and resell electric power around the nation--applauded the decision, saying it will hasten competition and savings to consumers.

"We are pleased that the commission has decided to accelerate open access to all customers. We have been positioning ourselves since last year" to sell power in California, said Les Bryan, president of Spokane-based Washington Water Power Co., the West's third-largest power marketer after Enron of Houston and Pacificorp of Portland.

But the state's two biggest investor-owned electric utilities--Southern California Edison and Pacific Gas & Electric--favored phasing in competition over four or five years, warning about an avalanche of paperwork and contending that the infrastructure needed to operate a free market--a power exchange and an independent operator to manage the statewide power grid--may not be in place in time.

The PUC also decided Tuesday to allow outside power companies to perform other customer services, including billing and meter reading, a ruling that the utilities had fought.

Utilities contended that it would allow outside providers to "cherry pick" the more affluent customers. But Edison spokesman Tom Higgins said the PUC is proposing safeguards against that. Utilities still have the option of requesting a delay in the implementation of statewide direct access.

* CONSUMER IMPACT: What changes can state's energy customers expect? D1

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