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Power Deregulation May Linger

Two bills would keep elements of system that rocked state

March 21, 2004|Nancy Vogel | Times Staff Writer

SACRAMENTO — The state Legislature is considering new measures to stabilize California's electricity industry, and the most prominent ones would retain elements of deregulation that were so traumatic in recent years.

In the three years since soaring prices and blackouts shook apart the state's attempt to create a competitive energy market, the Legislature has debated virtually nonstop how to patch the electricity industry -- and has come to no resolution.

Debate has picked up again, but not exactly where it left off. Last year, lawmakers considered returning to the regulation that had dominated the industry for nearly 90 years, before the disastrous launching of deregulation in 1998.

But now the two most prominent bills under consideration both assume that California will retain certain elements of deregulation. They both also assume a role for the private energy companies that bought or built power plants, gambling that California's one-of-a-kind electricity market would pay off.

One bill is sponsored by Southern California Edison, a public utility that supplies power to 11 million Californians. The other is backed by private energy companies that want to either lure away Edison's customers or sell Edison power.

The authors of the bills say their goal is the same: Set clear rules for the regulated utilities and private energy companies so they know how many customers they'll be serving for the foreseeable future, which would help them persuade bankers to lend money to build more power plants. Otherwise, lawmakers warn, the state could suffer power shortages as soon as 2006, and a power plant can take five years to permit and build.

But the bills take different approaches. The Edison bill, carried by Assembly Speaker Fabian Nunez (D-Los Angeles), would allow only the very largest businesses to walk away from utilities such as Edison.

"They have the appetite and ability to take risk," said Edison President Bob Foster.

The other bill, written by the bipartisan team of Assemblymen Keith Richman (R-Northridge) and Joe Canciamilla (D-Pittsburg), would open the door wider for more utility customers to leave and sign contracts with private energy suppliers. It would also force utilities to compete against private companies for the cheapest construction of power plants.

Consumer advocates oppose both bills. They remain suspicious of private generators and seek a return to a system in which most Californians got their power from three utilities -- Edison, Pacific Gas & Electric and San Diego Gas & Electric -- regulated by the state Public Utilities Commission.

"People have forgotten the history, and we've gone through a time warp," said Matt Freedman, an attorney with the Utility Reform Network, a San Francisco consumer group. "The Legislature appears to think the energy crisis was a one-time phenomenon that can never be repeated."

A bill aimed at re-regulating the industry passed the state Senate last year but was defeated by the Assembly utilities committee. Author Sen. Joe Dunn (D-Santa Ana) has until June to decide whether to revive the bill, which was strongly opposed by private generators and the big businesses and school districts that want the freedom to shop for cheaper power.

As lawmakers debate, California continues to rely on a cobbled-together system that includes elements from both the 1996 deregulation plan and the state's hurried reaction to the emergency, including billions of dollars worth of long-term power contracts held by the utilities that will not expire until 2009.

Canciamilla said the inaction worried him.

"In the Legislature's failure to act we have seen a failure of the marketplace to invest in new construction in California," he said. "We've had new plants built that were in the pipeline for a number of years. We haven't seen anything new come on line.

"What we're looking at," he added, "is what can we do to bring some stability back to the market and try to encourage a greater investment in new power."

Some lawmakers fear that, if nothing is done this year, the three big investor-owned, regulated utilities that serve three-fourths of California's population will wind up building needed power plants and passing their costs to customers, regardless of whether private companies could have done the job more cheaply.

"To not do something means that we are by default moving back to a fully regulated market that will likely result in higher prices for all Californians," Richman said.

There are two key differences between the private generators' bill, AB 428, and the Edison-sponsored bill, AB 2006.

The Edison bill would allow utilities to build power plants without first soliciting bids from private generators to provide electricity from existing or new power plants. It would also ban future regulators from undoing past decisions about allowing utilities to recoup their investment costs in new energy supplies.

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