Those bemoaning the lack of a competitive market for electricityin California should look on the bright side. Things are movingalong, and the process is not finished, said Daniel D. Richard Jr.,senior vice president government and regulatory relations forPacific Gas and Electric.

“We were, as far as we know, the first utility in the UnitedStates to put itself on a glide path out of the generationbusiness,” Richard told early attendees at the ninth annual HoustonEnergy Expo last week.

“We did this because we learned from the mistakes we made in thegas business. As change came, Pacific Gas and Electric Co. tried tohold onto its monopoly. We learned the hard way that no dikescomposed of legislation, regulation, and litigation can hold backthe tides of demand for a competitive marketplace. So whenconfronted with competition in the retail electric business, wewere ready for it and we embraced it.” Richard noted the Californiaexperience has been used to bolster and condemn arguments forrestructuring proposals in other states. “If your only standard ofprogress in electric industry restructuring is how many customershave switched to new suppliers, then one can paint a negativepicture.” However, so far, progress has been made, and there ismore to come, according to Richard.

Examples of progress include:

Every electric customer of investor-owned utilities inCalifornia has supplier choice regardless whether they choose toexercise it.

The independent system operator (ISO) has assumed control ofmost of the state’s transmission system to providenon-discriminatory access. System reliability has been maintained.Customers have access to wholesale power through the state’s powerexchange.

Residential and small business customers have received a 10%rate cut for more than a year now, and “all customers are expectedto enjoy substantially greater savings in a few years – when thetransition is complete and costs associated with the old monopolymarketplace are paid off and are no longer included on customerbills.”

Consumers also have been given the option of purchasing “green”power.

Richard acknowledged, however, that some are unhappy with theprogress to date and have sought to take a step back fromcompetition. He noted a proposition, which Californians voted down,that would have modified the program to bring competition toCalifornia.

“The voters concluded, however, that this proposition would takeaway the benefits they had received so far and the promise offuture progress, so the ballot measure was overwhelmingly rejectedon Nov. 3. On that same day in Massachusetts, voters were askedwhether they wanted the benefits of competition. Theyoverwhelmingly said ‘yes.’ So voters in two key states haveaffirmed that the direction we’re taking is the right one.”

Challenges ahead include finding ways to equalize customeracquisition costs among market players – utilities and marketers,whether to require utilities to exit the merchant functionentirely, rationalization of pricing for energy services, andunbundling of services such as metering.

“The challenge we face is to determine where the ultimate linewill be drawn between the services that a utility can (and should)provide and those that should be provided from a retail energyservices company.”

Richard called for an end of cost-of-service rate-making and amove toward performance-based rate-making. “Performance-basedrate-making (PBR) systems, when properly applied, can provide theutility with pressures and challenges that closely mimic afree-market system. But PBR schemes can inflict serious financialharm on utilities if their starting point is set too low or ifpublic service commissions create revenue leaks through othermeans.”

Joe Fisher, Houston

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