Battles over deregulation will be fought

The San Diego Union-Tribune

For months, SDG&E residential customers have opened their statements and considered themselves lucky — lucky they’ve emerged from the energy crisis with bills often just 25 percent higher than before.

But the crisis is far from over. In fact, over the next few months, San Diego Gas & Electric customers will confront issues that could change their bills yet again. Either they will rise far higher, or, less likely, be somewhat reduced.

With natural gas prices stable, the culprit again is California’s mangled, deregulated electricity market. From costs yet to come, to paying for past mistakes, deregulation should remain a key issue for much of 2002.

To begin with, state utility customers must pay for electricity California has secured under expensive long-term contracts. The state utilities commission has opted to allocate these expenses based upon the cost of providing electricity to each utility.

Ratepayers in the northern part of the state say this method is unfair to them. So Bay Area-based Pacific Gas and Electric and others are pressing for a shift to a uniform allocation of the costs statewide, a so-called postage-stamp approach with all California customers paying the same increase to cover the cost of contracted electricity.

Debra Reed, president of SDG&E, says that if the state were to switch to a single rate, costs for SDG&E customers would rise 13 percent. So the local utility is pressing to retain the allocation based on cost of service.

Michael Shames, executive director of the San Diego-based Utility Consumers’ Action Network, argues that SDG&E customers will save money in the longer run if a single price allocation is adopted. He believes that later next year the service-based allocation will mean higher electricity prices for SDG&E customers because the local area has limited access to inexpensive sources of power.

But he and others say there’s a better way to lower electricity costs: renegotiating the long-term contracts the state has signed with power providers, in particular the $7 billion deal under which California is buying electricity from Sempra Energy, parent company of SDG&E.

Critics say the Sempra contract and others tie state electricity customers to excessively priced and sometimes unneeded electricity.

“We will be highly focused on the Sempra contract next year,” said Shames. “Sempra‘s contract is one of the worst.”

Sempra defends its contract deal as among the cheapest for the state, however.

Michael Aguirre, a local attorney pressing a class-action lawsuit against energy suppliers and a candidate for district attorney, expects nearly all the contracts will be renegotiated following investigations of the industry.

“Those long-term contracts will be found to have been the product of a manipulated market and brought about through duress,” said Aguirre. “They will be substantially renegotiated.”

Political pressure for renegotiation is high and could rise higher if regulators learn of market manipulation from the numerous investigations into the meltdown of Enron Corp., the nation’s largest trader.

At the least, California Public Utilities Commission President Loretta Lynch expects that Enron‘s absence will lead to a change in the state’s political mix.

“Enron was flooding our market last year with misleading information about the benefits of deregulation,” said Lynch.

“They had scores of lobbyists at the Legislature and the commission carrying their message of deregulation.”

Whether political pressure forces renegotiation of the state’s power contracts, SDG&E customers remain liable for $600 million in past costs — the notorious balancing account — that the utility says it incurred from buying power for its customers.

PUC to decide

UCAN and SDG&E are awaiting a California Public Utilities decision on who will get hundreds of millions of dollars in profits SDG&E earned from the sale of electricity. The utility says all those profits belong to its shareholders, but it offers to rebate $219 million of the gain to offset the $600 million consumer debt it claims to be owed.

UCAN says all the profits belong to SDG&E customers because it says the utility was barred from selling electricity for profit under deregulation, which largely restricted utilities to profiting from distributing electricity. The consumer group says its proposal for the $600 million debt would save customers nearly $200 million.

SDG&E says if the commission fails to approve its plan for the debt, it will continue with previously filed litigation.

“The downside is that our customers won’t get the balancing account behind them,” said Reed.

The SDG&E president noted that the utility initiated a request for refunds with federal officials from the high prices paid during the electricity crisis. Although Reed expects the Federal Energy Regulatory Commission to make key decisions about refunds next year, she also expects the issue of refunds will be mired in litigation for years.

The question of which power suppliers are responsible for making whatever refunds that may be ordered will require investigating lengthy chains of transactions among suppliers that occur before electricity is sold to consumers.

A third route

“It will be a complex web to unwind, and the Enron situation will complicate things,” said Reed, whose parent company has a $7 billion contract to supply power to California.

SDG&E further hopes next year to make progress on its proposed Valley-Rainbow transmission line through North County to create a third route for moving electricity into and out of its service territory.

Shames hopes the transmission line and other projects are debated within the context of regional energy planning, which he believes will be key next year as San Diego assesses its energy future.

He and many others further expect electricity to play a major role in next year’s gubernatorial campaign. But Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, who led a successful ballot initiative to reform the insurance industry, says an initiative is unlikely on the power issue.

Though Rosenfield expects more rate hike proposals to help beleaguered companies, he said, “We’ll focus on stopping those bailouts in the courts and at the Public Utilities Commission.”

All this leaves industry insiders remarkably uncertain, said Gary Ackerman, executive director of the Western Power Trading Forum, an industry trade group. He expects further regulation of electricity markets next year, which could help restore confidence in them.

SDG&E‘s residential bills

Though many local utility customers have emerged from the power crisis with overall bill hikes of 20 percent to 25 percent compared with 1998, much of the cost of the crisis has yet to be paid.

Average monthly residential bill:

………………..Electric………….Gas………….Total

Jan. ’98………….$50.59…………$45.25…………$95.84

Jan. ’99………….$50.59…………$42.01…………$92.60

Jan. ’00………….$51.60…………$43.80…………$95.40

Jan. ’01………….$69.10…………$95.60…………$164.70

Jan.* ’02…………$70.60…………$46.40…………$117.00

*Projected

CHART; SOURCE: SDG&E