San Diego Union-Tribune

SAN DIEGO — Whatever its fate, the effort to reregulate California’s electricity market won’t share one characteristic with the 1996 measure that deregulated the market: It won’t win unanimous approval by the Legislature.

In fact, the proposal by state Sen. Joseph Dunn, D-Garden Grove, to formally repeal deregulation and return to tightly regulating utility companies has run into stiff opposition and spawned a competing measure in the Assembly.

As first conceived by Dunn, Senate Bill 888 would have slammed the door on so-called direct access, the private contracts signed by large users for cheaper electricity that critics say shifted costs to smaller users.

It also would fully restore the obligation for local utilities to procure or generate enough power to meet consumer needs. In other words, SB 888 would depart from the presumption under deregulation that market forces would fully meet customer demand and ensure that utilities were again responsible for keeping the lights on.

Supporters say the bill would block the practice of big power users shifting hundreds of millions in costs onto smaller customers and send an important message to the Federal Energy Regulatory Commission, which they argue has failed to protect ratepayers from price gouging.

“The rest of the country and the world are watching,” said Michael Shames, executive director of the Utility Consumers’ Action Network. “This bill is a scathing denunciation of deregulation and the FERC.”

Shames and other consumer advocates note that direct access deals have cost smaller ratepayers more than $600 million, because some big users – including large businesses and some big educational systems – avoid paying the crisis-related costs that the vast majority of electricity consumers continue to pay with each month’s bill.

But opponents of SB 888 have already succeeded in winning a key concession: Under an amendment to the bill, the California Public Utilities Commission could keep direct access alive, if it can craft a plan that doesn’t shift costs onto smaller ratepayers.A PUC plan would be subject to a second vote by the Legislature.

Beyond the issue of direct access, opponents of the Dunn bill say California has only recently restored stability to power markets and more rules changes will only scare off needed investment in new power plants.

“Corrective action has already been undertaken, and this bill will undermine that action,” said Jan Smutny-Jones, executive director of the Independent Energy Producers Association.

Those actions include a patchwork of PUC orders and state laws, but none as comprehensive as SB 888, which is described by authors as a repeal of deregulation.

AB 428, the competing measure in the State Assembly sponsored by Keith Richman, R-Northridge, would establish rules for direct access, without a requirement for a second vote.

Daniel Pellissier, chief of staff for Richman, says the Legislature will never approve a measure without a direct access provision.

“With the heart out of Dunn’s bill, all that’s left is campaign rhetoric,” he said.

Dunn says his bill still bars any form of direct access that involves cost shifting. He argues that a return to tight regulation of utilities is essential because deregulation has failed wherever it’s been tried.

Deregulation, he says, creates an inherent contradiction between the obligation of electricity suppliers to gain market advantage so they can raise prices – which is best for their shareholders – and the consumer desire for low electricity prices and a stable supply.

“If a chief executive has the ability to gain market power, you have the fiduciary responsibility to do it and use it for the benefit of the shareholders,” said Dunn, who is also running for attorney general.

Dunn and supporters of his bill say the ability to gain market power is always near at hand because of electricity’s special characteristics: It can’t be stored, it’s an essential commodity and it has relatively inelastic demand.

“Deregulation condemns us to a cat-and-mouse game with suppliers seeking market power,” he said.

So Dunn also proposes to re-establish the obligation of local utilities to provide electricity and put those utilities firmly under the regulation of the PUC, which sets profits for utilities within a narrow spectrum.

SB 888 further seeks to bar holding companies from draining utilities of cash, leaving them fiscally unable to provide service. The bill does this by requiring utilities to keep serving customers as their top priority.

Dunn says this provision of the bill has sparked opposition from some large holding companies, including Sempra Energy, parent of San Diego Gas & Electric.

“Their vehement opposition to SB 888 is derived more from the holding company provision than it is from the best interest of their utility,” he said.

A spokesman for Sempra Energy said the company prefers to have holding company issues resolved by the courts. Ralph Richardson, the Sempra spokesman, added that the company expects SB 888 to continue to undergo changes.

He noted that about 11,000 SDG&E customers – from a total of more than 1 million – have direct access deals. Those companies are responsible for about 19 percent of all electricity use in the region.

The Foundation for Taxpayer and Consumer Rights, meanwhile, has withdrawn support for Dunn’s bill because of recent changes. Doug Heller, a senior advocate with the foundation, said the direct access amendment opens the door to a bifurcated market, which in turn creates an opportunity to manipulate supply and prices.

“In the short term, the big users will get access to the cheapest power,” said Heller. “When the state lets part of the market operate without regulation, we’re stuck with depending on the valor and honesty of the energy companies. That’s a risk we took once and should never take again.”