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PUC May End Private Deals to Buy Power

February 20, 2002|LEE ROMNEY | TIMES STAFF WRITER

In a decision that will have major implications for the future of energy deregulation in California, officials will decide Thursday whether businesses and institutions can continue to buy power from private electricity providers.

The vote by regulators could effectively kill what was once the cornerstone of California's foray into deregulation. It also could force thousands of customers that entered into cost-effective private deals from July to September last year to cancel them and return to the public power grid within 90 days.

The state wants to rein in private deals to shore up the troubled investor-owned utilities and pay off long-term power contracts purchased at the height of the energy crisis.

The lost savings could be sizable: The University of California and California State University systems estimate their combined costs would rise by $50 million a year. The Los Angeles Unified School District would see $7 million in additional annual costs. Although private businesses arguably can raise prices to cover new costs, the dollars cannot be squeezed out of public budgets, officials for the school systems say.

All are customers of Enron Corp., which despite its bankruptcy delivers as much as half the state's private power and boasts a client list of many of the state's largest businesses. Although customers of all private energy service providers could be stung by the action, many Enron customers could face additional hurdles.

During last year's energy crisis, Enron temporarily transferred many of its customers back to the investor-owned utilities to save money. Now, state regulators contend that those customers not switched back to Enron service by July 1 should not be eligible to renew their private, direct-access contracts.

The California Public Utilities Commission blocked all new direct-access contracts Sept. 20, but left open the issue of whether thousands of deals signed throughout the summer also would be suspended. On Thursday, it will consider extending the ban back to July 1 and forbidding all contract extensions or reassignments on deals inked before then.

Crafted by Administrative Law Judge Robert Barnett and championed by Commissioner Carl Wood, the decision would effectively kill private power purchases. The move is necessary, Wood says, to prevent disproportionately saddling small, mostly residential users with the state's burden through rate hikes and surcharges.

About 13% of the state's electricity load is handled by direct-access providers, which tend to serve the state's biggest customers, up from 2% on July 1, Wood said. That leaves residential consumers and smaller businesses to pick up the state tab.

The Barnett decision is being fiercely opposed by service providers--Enron among them--industry trade groups and private access customers, which would lose hundreds of millions of dollars in savings, directing those dollars instead to help the state pay off its debt.

"I think everybody could be in trouble if [the Barnett decision] gets passed," said Daniel W. Douglass, a Woodland Hills lawyer representing the Alliance for Retail Energy Markets, a group of direct-access proponents.

Even the Office of Ratepayer Advocates, an arm of the PUC that serves as an advocate for California consumers, sounded an alarm bell in comments filed last week.

"The [decision] would basically give energy service providers 90 days to wrap up their business and leave the state," the comments said. "Direct access would be over."

The PUC will consider an alternate decision, drafted by Commissioner Geoffrey F. Brown and supported by direct-access proponents. It suspends contracts signed after Sept. 20, rather than making the ruling retroactive to July, and allows contract renewals and reassignments.

In its comments filed with the PUC, Pacific Gas & Electric Co. supported the less restrictive Brown decision, but called for a surcharge to be imposed on direct-access customers to help shoulder the state's burden. It also opposes allowing direct-access customers to switch to other direct-access service providers. Southern California Edison favored the more restrictive proposal.

Enron customers have reason to watch the decision carefully. Beginning last spring, Enron moved thousands of customer accounts over to SCE and PG&E--although it continued to honor its price contracts with those customers.

Then, as prices on the spot market stabilized and utility rates and surcharges climbed, it shuttled them back to direct access throughout the summer. UC and CSU sued to block the switch and settled their case in May. But most other customers were moved without a fight.

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