As California enjoys lull in energy storm, it also faces repeat of deregulation debate

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Associated Press

SACRAMENTO — California’s lights are on and officials say there’s no immediate threat of rolling blackouts. The state’s largest utility has emerged from bankruptcy and the other two are financially secure. Electricity rates may be among the nation’s highest, but they’re stable thanks to the long-term energy contracts signed in 2001.

It’s the perfect lull in the energy storm for policy-makers to figure out how to shape California’s energy market before the long-term contracts begin to expire and a large number of power plants retire.

So far, however, most lawmakers are focused on the state’s chronic budget problems and the debate over how to fix California’s workers’ compensation system, the nation’s most expensive.

Any attention paid to energy has been centered on various shades of deregulation – the same sort of proposals, consumer advocates say, that led the Legislature to write a bad deregulation law in 1996 that in turn sparked the 2000-2001 energy crisis.

Californians are saddled with electricity rates 20 percent higher than what they paid before the crisis – a fact of life that has forced many consumers to change the way they use power.

Randy Rowse, owner of the Paradise Cafe in Santa Barbara, said he can only cut back on labor costs and personnel when rates are high. “It’s one of the few things you can do because rent’s not going down.”

But he’s also changed how he runs his business to cut energy use and costs. He bought more efficient refrigeration systems, cut his use of air conditioning and heat and “we use airpods instead of heating elements for coffee,” referring to the Thermos-type containers. “It saves a lot of energy, and it keeps the coffee from cooking.”

Such conservation measures haven’t led to lower electricity rates, but they give the Independent System Operator, manager of most of the state’s power grid,
more flexibility in what is expected to be a summer with thin power reserves.

“We should be OK this summer,” said ISO spokesman Gregg Fishman, adding that he’s “cautiously optimistic” about the summer electricity outlook despite last month’s Stage 1 power emergency.

A Stage 1 alert is called when the state’s power reserves fall below 7 percent. That allows grid managers to access emergency resources to maintain its operating reserves.

Conservation is essential, Fishman said, because, “the less power people use, the easier it is to balance the grid and it’s cheaper for consumers.”

Millions of Californians reduced their electricity use during the crisis, and while the impact hard to measure, Fishman said many of those conservation measures continue today, contributing to energy security.

Still, there are some parallels between this year and the mid-1990s, when high electricity prices led to a debate on the future of the state’s power market.

“The energy crisis is essentially over,” said Michael Peevey, a former utility executive and now president of the California Public Utilities Commission. “But it is true that we’re saddled with rates about 20 percent higher than they were prior to the crisis.”

California’s energy crisis began in May 2000, when wholesale prices in the newly deregulated electricity market rose sharply due to a shortage of hydroelectric power, market manipulation by energy traders and a booming economy that demanded more power.

California’s utilities then ran up huge debts, because the deregulation scheme barred them from charging customers the true price of power. The unstable market also led to six days of rolling blackouts in 2001, the bankruptcy of Pacific Gas and Electric Co., and billions in state money spent on power purchases.

Since the crisis, the Legislature has toyed with ways to restructure the state’s electricity market, but the budget and other crises have pushed their plans aside.

What is being debated now, said Doug Heller of the Foundation for Taxpayer and Consumer Rights, are bills that are “still driven by the idea that we should try to regain a deregulated marketplace.” They also contain elements of the flawed 1996 deregulation plan, such as the ability to let large electricity users shop around for their electricity.

So-called “direct access” is in the two major bills at work now. One, by Assemblymen Keith Richman, R-Chatsworth, and Joe Canciamilla, D-Antioch, proposes a “hybrid” system – allowing large energy users to opt out of utility service for a competitive “direct access” market.

A competing bill by Assembly Speaker Fabian Nunez, D-Los Angeles, would also allow direct access for large customers, but would put more restrictions on when they could jump between a utility and a competitor.

State lawmakers halted direct access, a cornerstone of the deregulation law, in September 2001 to stop customers from fleeing utilities for lower-priced competitors and leaving the remaining customers to repay the billions in energy debt in the form of higher rates for years.

When it comes to building new power plants and finding other energy sources, the state needs to determine “who builds, who buys and for whom,” said PUC commissioner Loretta Lynch. “And to be smart about it, we need to determine it this year.”

The bulk of the long-term power contracts begin expiring around 2009 – which is around the time a number of California’s aging power plants are set to retire. And while the state has made progress in building new power plants, adding about 10,000 new megawatts since 2001, Peevey said “we need to do more.”

“That’s where we have to sort out what the market looks like in the future,” he said. “The uncertainty doesn’t serve anyone.”

Consumer Watchdog
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