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California Moves Toward Re-Regulation

California Moves Toward Re-Regulation

The decibel level of the cries to rollback California's electric industry deregulation was raised considerably last week with consumer advocates, local and state elected officials, and regulators joining the growing chorus. There is the prospect for state legislative hearings before the summer session ends in September to look at possible changes in the state's 1996 electricity law.

In the midst of this new push, a state report on proposed additional competition in the electric industry was seized by the two newest governor-appointed commissioners at the California Public Utilities Commission (CPUC) as a reason to raise the re-regulation question. They raised questions in an addendum to the CPUC staff report as to whether the state's deregulation experiment is hurting consumers rather than helping them.

One of the two regulators, Carl Wood, last Tuesday advocated that the state re-regulate parts of its restructured electric industry and re-establish some power he said it has ceded in the process to the federal government. He cited his concerns during a press conference in San Diego designed to assuage electricity customers whose bills have doubled and tripled due to a summer peak-load price and supply crunch.

Wood, a former statewide utility union leader, said one of the actions that ought to be considered is the ability of the state to mandate the construction of new generation plants if the private sector nonutility market does not provide adequate generation. (Wood did not comment on the more than a dozen new generating plants under construction or in the state's approval process presently, zeroing in on ways to ensure adequate generation next summer and the following summer.)

Wood also is going to push the CPUC to do its own investigation --- ordered earlier this summer by Gov. Gray Davis, who appointed him to the regulatory agency --- of whether market abuses and "collusion" among generators were responsible for the recent price spikes and power shortages. He specifically said that he does not think the market monitoring committees of the two state entities created as part of California's de-regulated electricity industry --- the Independent System Operator (Cal-ISO) and Power Exchange (Cal-PX) --- are impartial enough to do the job because they are operated under "stakeholder" boards that have a vested interest in the continued deregulation of energy.

"[The current high electricity bills] are a logical consequence of 15 years of ideologically driven regulatory policy at the CPUC," Wood said. "Despite projections from the California Energy Commission for the need for future generation capacity, the CPUC under the past two administrations has done everything it could to prevent the construction of new utility-owned generating plants."

Then, in 1995, he said the CPUC under former Gov. Pete Wilson issued "a radical deregulation decision aimed at ceding all authority over generation to market forces. These are the roots of the present crisis."

In the current public policy climate, the 28-page CPUC staff report on further deregulation of the electric business is not expected to be acted upon, according to sources at the CPUC. However, there is a possibility it will be used as part of a broader, en-banc hearing in which all five CPUC commissioners hear testimony from energy industry participants and other stakeholders.

As part of a two-year CPUC effort, the report, "Electric Retail Markets and Distribution Services," has drawn strong public ire and criticism from CPUC President Loretta Lynch and her colleague, Wood, both of whom said they want to "disassociate" themselves from the staff document which advocates possible further unbundling in the electric industry, although on a qualified basis.

The newest members of the five-member panel criticized the past CPUC commissioners for failing to consider "potential adverse consequences, such as consumer harm" in restructuring the electric industry. They said the CPUC over this time has "dismantled" the traditional distribution utility.

"Instead, the commission restructured an entire industry on the basis of shaky assumptions and 'policy preferences'-not concrete analysis of the factual circumstances surrounding high electric rates in California," Lynch and Wood stated in their attachment. "We will not support more deregulation of the electric industry until we understand better the consequences for our state. The staff study does not contribute to our understanding."

Richard Nemec, Los Angeles

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