Deregulation Lite

While critics scoff at Southern California Edison's embrace of a bill promoting "deregulation lite," the proposed legislation is on a roll. Those on the side of competitive generation bemoan restrictions on customer choice. They also see Edison's recent rate-discount offer to large and medium-sized businesses threatening to leave the state as more proof the utility is intent on maintaining and expanding its rate base. Those on the other side, including former Assemblymember Fred Keeley, who was a key player during the energy crisis, says the market needs to be partly reregulated to protect consumers and the environment. He says the bill is "the only proposal of any comprehensive nature to reregulate some parts, and think ahead of others in the energy field." Keeley, now director of the Planning & Conservation League, is featured in a television commercial running in Southern California on behalf of the bill, sponsored by Edison. The Assembly Utilities and Commerce Committee passed AB 2006 by Assembly speaker Fabian N??ez (D-Los Angeles) on April 19 on a 9-3 vote, with the caveat that substantial amendments were needed for it to fly. Sections that interfered with businesses' ability to seek nonutility energy deals, including the provision stopping noncore customers-those with loads of 500 kW or more-from switching providers for five years, rubbed many legislators the wrong way. "It locks customers into service for the long term," warned Assemblymember Keith Richman (R-Northridge). "Together, it and the stranded-cost provision place impediments to direct access." Richman's AB 428, which would create a less restrictive core-noncore market, is pending in the Senate Energy, Utilities and Communications Committee. AB 2006 allows a dash of competition mixed with cost-of-service rules, providing a framework to encourage power plant investment and stabilize the market. "California will need substantial new capacity by 2006, and we must start now," said Edison president Bob Foster. New power plants would be built by utilities and independent producers-but under different rules of the game. The former would not be transparent or competitively bid, and utilities would be guaranteed cost recovery in rates for generation investment. Meanwhile, utilities would have open bidding on power from generators. Some energy producers, businesses, and consumer groups say that would create a very uneven playing field and contravene existing law. "The [utility] return should be commensurate with the risk," said Lenny Goldberg, lobbyist with The Utility Reform Network. He said that a guaranteed rate recovery is virtually risk-free, adding he was hopeful the bill could be amended to address the issue. Jan Smutny-Jones, Independent Energy Producers (IEP) executive director, does not share Goldberg's optimism. He warned that AB 2006 would guarantee investor-owned utilities high rates of return on plants they built but also allow them to jack up the price of power under contract with generators. He said that a fair and reasonable procurement process was created by AB 57 and that rules implementing the law should be the guide. There were also concerns that the bill would allow Edison to regain its monopoly on power plant building. "We do not have plans to build all the power we need," Foster said, adding that the utility expected to build about 25 percent of its demand. Sarah Reyes (D-Fresno), committee chair, suggested that the bill place a ceiling on the amount of generation utilities could construct. The hearing was attended by a big and noisy crowd of supporters, opponents, and observers who couldn't resist watching the latest round on the hottest energy bill of the season. There was much protest and muttering over how Edison's words and deeds didn't jibe, particularly in the consumer choice arena. Foster dismissed the claim that Edison's proposal for a discount business-retention rate would conflict with or abrogate direct access, noting it would also be available to bundled and direct-access customers. "The business-retention discount applies to all in the state," Foster told me following committee passage of AB 2006. The rate-cut proposal when announced was limited to companies with 200 kW demand, about 12,000 firms (see Circuit , April 9, 2004). Other of the legislation's hot spots include the prohibition on the California Public Utilities Commission's future reasonableness reviews-not too different from what Pacific Gas & Electric got under its bankruptcy deal. Under the legislation, once the CPUC approved a utility's long-term resource plan, it would reap ratepayer funds and the commission would be foreclosed from assessing those costs over the plan's life. "We risk more Diablo and SONGS [nuclear power plant] cost overruns without a reasonableness review," said Bill Booth, head of the California Large Energy Consumers Association. Foster said that only the cost of the facility would be guaranteed but that the rate of return would be decided in cost-of-capital proceedings. AB 2006 would also impose resource-adequacy requirements on all energy providers, except public power agencies. That provision, however, may clash with a bill passed the same day that focuses on requiring all load-serving entities to meet resource-adequacy requirements. The Edison bill's list of proponents and supporters makes for a hefty match, and that doesn't count stakeholders waiting to see how the bill evolves. Supporters include Sempra Energy, the Coalition of Utility Employees, the Planning & Conservation League, and numerous local business and community organizations. In addition to IEP and TURN, opponents include the California Manufacturers and Technology Association, the Silicon Valley Manufacturing Group, and the Alliance for Retail Energy Markets. In spite of the various interests stakeholders are fighting to protect, they would all agree on one thing: the state is in desperate need of an energy policy. Few would also doubt that it will involve a hybrid market, but getting it right will likely be the governor's next challenge.

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Deregulation Lite

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