BIG USERS MAY BE ALLOWED TO SHOP AROUND

San Jose Mercury News (California)

Big power users such as universities and manufacturing plants may be gaining ground in an effort to bring back one of the most controversial pieces of the state’s energy deregulation experiment: the ability to buy power on the open market.

A state Senate committee today will hear amendments to a bill — SB 888 — that would order state regulators to devise a system that gives large power users the option to buy power from someplace other than their local utilities.

Meanwhile, the state Assembly is debating similar but stronger legislation that would allow energy users to sever ties with their utilities starting in 2006.

Business groups say the arcane issue — know as ”direct access” — is critical because it allows companies to shop for long-term energy contracts at competitive prices, a key benefit for controlling costs during an economic downturn.

”They’ve got certainty and control with direct access, something they don’t have by staying with the utilities,” said Dorothy Rothrock, vice president of legislative affairs for the California Manufacturers and Technology Association.

Consumer groups are livid, though, especially about the amendments to SB 888, which they originally thought would drive a nail into the coffin of energy deregulation.

“What we experienced with deregulation is the exact system that is now being proposed as a compromise between regulation and deregulation,” said Doug Heller, of the The Foundation for Taxpayer and Consumer Rights. ”The premise of this bill was that we’d end deregulation, but these amendments will effectively recreate it.”

Direct access — the ability to bypass utilities and buy power directly from independent power generators — was a key feature of California’s energy deregulation efforts in the 1990s. Proponents predicted that a competitive marketplace for power would drive down prices, benefiting everyone from the smallest residential user to big manufacturing plants.

Instead, prices skyrocketed on the open power market in 2000-2001, driving the utilities deep into debt, forcing the state to step in to buy power, and causing the legislature to rethink its flirtation with deregulation.

Eventually, lawmakers ordered state regulators to suspend direct access purchases, which they did in September 2001. Today, the only power users buying on the open market are those that signed contracts before state regulators acted. That includes state universities and firms such as Fremont’s NUMMI automobile plant.

Under current law, they will have to return to the utilities when their contracts expire.

The state Legislature appeared headed for a showdown on the issue this year, with some in the business-friendly Assembly supporting a return to direct access, and Senate leaders seeking to vanquish it with SB 888.

But at the behest of Sens. John Vasconcellos, D-San Jose, and Byron Sher, D-San Jose, the Senate has at least warmed to the idea of direct access.

The amended Senate bill calls on the state Public Utilities Commission to devise a plan for large power users and report back to the legislature by July 2004.

”The author’s intent is not to prevent one’s right to choose someone else as an energy provider, as long as it does not diminish reliability and shift costs to other users,” said Ronda Paschal, a consultant for Sen. Joe Dunn, D-Garden Grove, the author of SB 888.

Business groups said the Senate bill does not go far enough and they prefer the Assembly proposal.

”We don’t want to compliment the Senate,” said Justin Bradley, energy director for the Silicon Valley Manufacturing Group. ”They took a step in the right direction. But we still believe the Assembly bill is the way to go.”

Legislative aides said the Assembly bill would spur investments in new power plants in California because power generators would have a larger market of companies wanting to buy power.

Aides say they have also addressed one of the chief complaints of direct access: that the power users who remain with regulated utilities will be hurt financially.

During the energy crisis, the state signed about $40 billion of long-term contracts to supply power to customers of the utilities — costs that utility ratepayers are now repaying through higher bills. Critics of direct access had complained that big energy users could escape those costs by fleeing to the open market.

But backers of the Assembly bill note that large power users would have to pay ”exit fees” if they choose to leave their utilities.

But Heller is not convinced. He envisions a scenario in which power users enjoy the benefits of cheaper power on the open market for a while and then see prices spike.

“And then they’ll kick down the doors of the legislature demanding to get back into the regulated system,” Heller said. ”And that’s not a risk we should be taking.”

Whether the two houses of the legislature can reach a compromise that appeals to business groups remains to be seen. Rothrock said Senate leaders are insisting that businesses be subject to an open-ended fee for the right to shop for power, a concession business groups are not willing to make.

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Contact Michael Bazeley at [email protected]