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California and the West

Momentum Grows for Regulating Power

Utilities: Senate OKs bill to cut San Diego's rates as legislators call for price freezes and U.S. intervention.


SACRAMENTO — The political pendulum that had swung hard toward electricity deregulation four years ago in the state Legislature reversed itself Thursday, with legislators calling for rate freezes, federal intervention and even state ownership of power plants.

A bill to cut San Diego's soaring electricity rates passed the Senate, and in a hearing about this summer's extraordinarily expensive and scarce electricity, legislators fired tough questions at state and federal energy officials. They did not ask them of fellow legislators, some of whom helped negotiate the complicated 1996 law, passed with no dissenting votes, that made California the first state in the nation to deregulate its electricity market.

In a committee hearing, state Sen. Steve Peace (D-El Cajon), who led hundreds of hours of negotiations over the deregulation bill, chastised the California Public Utilities Commission for failing to cap electricity prices for customers of San Diego Gas & Electric before seasonal price spikes. And he reminded the audience that the PUC, not the Legislature, forced California's three big utilities to sell power plants to private companies as part of deregulation.

Peace said recent power woes have eroded support for a Pacific Gas & Electric Co. proposal to auction off its 174 dams and hydroelectric power plants in Northern and Central California to private companies. Those plants generate enough electricity to meet 10% of the state's peak demand.

On Wednesday, the San Francisco-based utility, after months of public hearings, abandoned the auction plan, instead proposing spinning off all of its hydroelectric plants to an unregulated subsidiary--an idea still unpopular with many environmentalists and some legislators.

Peace said he may consider supporting legislation to take state ownership of those P G & E plants, and he suggested that California consider building its own "peaking" power plants to be used briefly on hot summer days when electricity demand soars.

Other legislators agreed that the idea--known as "socializing the peak"--is worth investigating. Sen. Kevin Murray (D-Los Angeles) noted that even as California agencies streamline the licensing of power plants to help boost the state's supply of electricity to meet unexpectedly high demand, "we will be encouraging the building of power plants over which we may not have any control."

"We'll be building plants that, frankly, have the legal route to gouge us," he said.

The talk of government intervention left the new players in California's electricity market questioning their future role. "What happened to our free, open economy?" said Gary Ackerman of the Western Power Trading Forum in Menlo Park, which represents power producers and sellers.

"They can't have markets and then take them away," he said.

Under the deregulation law, the shareholders of private companies were to take the financial risk of building power plants, and consumers would get competitive rates and clean, efficient power plants. But it has not unfolded like that in the two years since California established two separate nonprofit agencies to handle the sale of scheduled and emergency electricity supplies.

This summer the 1.2 million customers of San Diego Gas & Electric became the first Californians to bear the wholesale cost of electricity. Their bills, on average, more than doubled in the past two months.

Gov. Gray Davis and legislators have blamed the soaring prices on rising demand for electricity and a 10-year hiatus on power plant construction in California. But they also blame gouging by the handful of companies, most of them based out of state, that purchased power plants from newly deregulated utilities.

With their authority to control electricity supplies or prices curtailed, the governor and top energy officials have found themselves pleading with the Federal Energy Regulatory Commission--which can set prices for wholesale electricity--to declare California's fledgling electricity market a failure and to control prices.

FERC general counsel Douglas W. Smith, in testimony before legislators, offered minimal hope.

"Events this summer in wholesale markets, here and elsewhere, have demonstrated the need for the commission to be proactive, not just reactive, overseeing bulk power markets," he said. But any action taken by the commission, which espouses open competition, depends upon the results of a FERC investigation into the California market, Smith said.

To stabilize the retail price of electricity, over which the California Public Utilities Commission retains some authority, Gov. Gray Davis on Wednesday asked the PUC to cut San Diegans' monthly electricity bills in half by stretching payments over two years or more, so bills will drop in the short term but customers will pay more in the winter to make up the difference.

The PUC is expected to vote on such a measure Aug. 21.

Several consumer groups on Thursday called the governor's approach an inadequate "installment plan." What's needed, said Harry Snyder of Consumers Union, is a rollback of San Diego's rates and an extension of the rate freeze that protects customers of Southern California Edison and PG & E until March 2002.

"In 1995 we were slow to recognize how bad this deal was," said Snyder, whose group opposed the 1996 deregulation bill--after it passed.

An urgency bill that would roll SDG & E rates back to June levels cleared a two-thirds majority hurdle in the Senate. The legislation, Assembly Bill 2290 by Assemblywoman Susan Davis (D-Kensington), passed 28-0, winning the votes of all the Democrats present as well as four Republican senators.

Legislators said the bill will probably be taken up by the Assembly when it reconvenes after next week's Democratic convention.

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