Direct access to energy revisited
Experts weigh in on the effects of returning the state to deregulation
By Janis Mara,
MEDIANEWS STAFF —
June 6, 2007
A move toward deregulating part of California's electricity market holds major pitfalls for the state and residential customers, experts said.
The state Public Utilities Commission voted 4-1 late last month to investigate whether it has legal authority to reinstate direct access. Direct access allows individual ratepayers, as well as big energy users such as universities and businesses, to use electricity providers other than their regular utilities.
California's first foray into deregulation in 1996 sparked a massive statewide electricity crisis in 2000 and 2001 and the bankruptcy of the Bay Area's major utility, Pacific Gas & Electric. PG&E has since emerged from bankruptcy, and deregulation was suspended in 2001.
"I think that's a story line everyone remembers with regret," said Peter Rodriguez, an associate professor at the Darden School of Business at the University of Virginia. "It had awful consequences that no one would want to repeat."
Some experts said direct access holds little benefit for residential consumers.
"Manufacturing facilities, big facilities like hospitals and manufacturing facilities would be advantaged through those kinds of purchasing agreements because they can purchase a large block of energy" and use their purchasing power to get lower prices, said Richard Holober, executive director of the Consumer Federation of California, a consumer advocacy group based in San Mateo.
Individual customers lack that clout, he said.
Businesses with multiple locations, such as the University of California, would benefit most from the proposed deregulation, agreed Norm Plotkin, executive director of the Sacramento-based Alliance for Retail Energy Markets. But, he said, the move would benefit residential customers by giving them more choices.
Plotkin's group, composed of independent energy companies that hope to garner more customers, argued in a December petition to the PUC that the market had stabilized enough to reinstate direct access by next year. That petition led to last week's reconsideration of the issue.
"The heart of the matter is giving consumers the ability to have choices," Plotkin said. "As a PG&E customer, I want to shop providers. I want a responsive provider."
In a rare show of unanimity, both consumer watchdogs and PG&E decried the PUC's vote. The deliberation process could stretch into 2009.
"Deregulation is not a good idea," said Darlene Chiu of PG&E. "It has taken us a long time to get back on our feet (after the energy crisis)."
The utility buys energy in advance based on projected usage, she said. If existing customers defect, "what are we going to do with all the energy we've bought in anticipation of delivering it to our customers?"
Also, deregulation is unfair to ratepayers who remain with PG&E, she said, because PG&E bills still reflect small additional charges to help PG&E pay off debts from bankruptcy.
"My concern ... is making sure all customers are paying fairly and that our utility companies can plan adequately for their future," said Emily Rusch of CalPIRG, a consumer advocacy group that opposes deregulation.
Plotkin and Rodriguez counter that California's earlier deregulation was done improperly, and Plotkin maintains that energy deregulation has been successful in other states. Eighteen states, including Texas, Maryland, Illinois and New York, have deregulated energy, he said.
Rodriguez said direct access saves the average New York customer 5 percent or 6 percent on monthly electricity bills, or about $4.20 off a $70 bill.
Last month, however, Consolidated Edison of New York requested a rate increase that would add about $12, or 17 percent, to the average $70 bill.
"The payoff (of deregulation) is pretty modest, and the downside is high," Rodriguez said. "The truth of it is that the average person won't see anything approaching excitement when they open their bill."
Reach Janis Mara at 510-208-6468 or email@example.com.