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Californians Jittery After a Summer of Deregulation by John Howard, Associated Press The Spokesman Review, September 24, 2000

Soaring prices raise concern that new law is deeply flawed

SAN FRANCISCO _ The long, hot summer is ending for San Diego's electricity customers. But millions of other Californians fear they could face the same kind of misery when deregulation reaches their part of state.

San Diego-area ratepayers were horrified to see their electricity bills triple this summer when the region became the first in California to deregulate.

Next up is Pacific Gas and Electric Co., with 4.5 million customers from Bakersfield to the Oregon line. It wants to lift the lid on rates next spring, or even sooner.

And Southern California Edison, which serves 4.3 million customers in the Los Angeles metropolitan area, has not said when it wants to deregulate, but under state law it has to happen by 2002.

"Everybody's worried. But ratepayers have paid enough. They've overpaid, and they're not going to pay a penny more," said Harvey Rosenfield, a consumer advocate in Santa Monica.

The state Public Utilities Commission, which wrote the first report seven years ago urging deregulation, said in a grim assessment that more problems loom on the horizon unless there is a "mid-course correction."

The summer's woes "represent a precursor of what lies ahead for California's economy over the next 30 months," the PUC said.

The PUC is investigating its options, which could include putting the brakes on deregulation.

The 1996 deregulation law was pushed mainly by big industrial customers, who wanted lower rates. It was supported by utilities and free-market advocates. Consumer groups generally opposed it. It was overwhelmingly supported by lawmakers and signed by then-Gov. Pete Wilson.

Under the law, utilities would be forced to sell their energy-producing assets, such as dams and power plants, and buy power instead on the open market.

The theory was that competition would drive down rates. But it didn't work out that way.

When San Diego Gas & Electric, with 1.2 million customers, deregulated, the average monthly residential bill there and in southern Orange County rocketed from $40 to $68 to $130 in less than three months.

Ratepayers and politicians were so alarmed that California retreated somewhat from deregulation by rolling back San Diego rates and promising a $100million rebate to customers there.

Most agree that an inadequate supply of a power -- combined with high demand, caused by a sweltering summer, a booming economy and a growing population -- precipitated the soaring rates.

The episode has raised concern that the deregulation law is deeply flawed and tries to accomplish too much too quickly.

Five power plants are under construction and at least a dozen more are proposed, but none will be ready to boost supplies this year, or most of the next. None were built in recent years because investors were wary of the uncertain California market.

In the meantime, other states are watching California and at least one -- Nevada -- may drop plans to deregulate.

"Our hope is that the states that stumbled into deregulation reconsider, and that those that have not yet acted don't even bother," said Charlie Higgley of Public Citizen, a Washington-based consumer group.

At least a half-dozen other states are in some phase of deregulation, including Pennsylvania, New York, New Jersey, Massachusetts, Rhode Island and Connecticut. None has experienced the roller-coaster rates California has.

That's because they did it differently, according to industry experts. In some cases they did not force the sell-off of generation facilities, or they took more time.