San Diego Union-Tribune
SAN DIEGO: In a contentious vote, state utility regulators Thursday terminated what was once the centerpiece of California’s electricity deregulation plan – a customer’s right to choose a power provider – but allowed a loophole through which large customers could shift billions in crisis-related costs to residential ratepayers.
In voting 3-2 to end private power-purchase contracts as of Sept. 20, the Public Utilities Commission let stand deals signed last summer by hundreds of the state’s largest electricity customers, along with a relatively small number of residential customers.
For the moment, those customers are released from having to pay what would have been their share of costs incurred by the state in buying power during last year’s crisis. The state treasurer estimates that $8 billion in additional costs could now fall upon smaller utility customers.
Geoffrey Brown, the PUC commissioner who sponsored Thusday’s measure, promised to seek “exit” fees on customers with so-called direct-access arrangements in order to avoid any shifting of costs.
“If there is an inability to impose exit fees, I’ll be the first to join (opponents) and seek a rollback of direct access,” Brown said. Brown, who was joined by commissioners Henry Duque and Michael Peevey in support of the measure, said it was important to allow deals signed last summer to stand as a matter of regulatory consistency.
Those with direct-access contracts had argued that a retroactive cancellation of the agreements would be illegal.
Commission President Loretta Lynch and Commissioner Carl Wood, who opposed the measure, argued that those entering into direct-access contracts had been warned they might be canceled. Wood said the Legislature directed the PUC to end direct access in 2001.
What’s more, the commission’s authority to impose exit fees has not yet been established, Wood said, and even if it is, a fair calculation of the costs shifted to smaller customers will be difficult.
“Protecting a customer’s right to choose should not outweigh the commission responsibility to protect the vast majority of customers,” Wood said.
Wood and Lynch supported a measure that would have terminated the direct-access deals as of July 1, 2001.
Despite the promise of customer choice when deregulation began 1997, only a minority of smaller electricity customers found direct-access deals attractive. A much greater number of large users found bargains from alternative suppliers.
As of March 1, for example, just 14,763 of San Diego Gas & Electric’s 2 million customers had direct-access arrangements. Those customers consumed 20.1 percent of the power delivered by the local utility.
Statewide, about 14 percent of all power is provided under direct-access agreements.
The suspension of direct access had been mandated by the Legislature since February 2001. The issue at first appeared academic because there were no deals to be had during the worst months of the power crisis in 2001.
Conditions changed after California signed more than $40 billion in long-term power contracts. The huge volume of contractual purchases, along with other factors, caused spot electricity prices to collapse by mid-year. Electricity suppliers were then able to scoop up the cheaper power and offer deals to larger power users at lower prices.
But residential and small business customers, who had no cheaper alternatives, remained with local utilities and watched their electricity bills rise by 40 percent or more to cover crisis-related costs.
Consumer advocates criticized the PUC‘s action Thursday as another rip-off of smaller ratepayers under deregulation.
“This is taking billions of dollars out of consumer pockets and putting it into the pockets of the big businesses and energy companies who have pushed this mess all along,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica.
Supporters of allowing last summer’s private power deals to stand said it was essential for many businesses.
“Customers who entered into direct-access agreements did so to avoid the outrageously high rates the PUC imposed upon them,” said Dorothy Rothrock, vice president of government affairs for the California Manufacturers and Technology Association.
“Many of them felt that if they had not had the opportunity to get lower costs through direct access, they would have been uncompetitive in California.”
Rothrock added that large customers with direct-access deals are willing to accept reasonable exit fees that do not “burden us any more than we have to be to stay in business in California.”
Sempra Energy, which is both a direct-access provider and the parent company of SDG&E, applauded the decision. The San Diego company said it would advocate that whatever exit fees are adopted they “balance the needs of direct-access customers and the customers who buy their power through SDG&E.”
Consumer advocates expect a hard fight against exit fees sufficient to avoid sticking smaller customers with excess costs.
“It’s unlikely that meaningful exit fees will be imposed,” Heller said. “The big businesses who pushed for deregulation have escaped their share of the pain.”
