SACRAMENTO – The three main Republican candidates for governor want to push forward with a corrected version of electricity deregulation, but only businessman Bill Simon advocates something like deregulation in its purest form.
Polls show that most Californians think Gov. Gray Davis mishandled the problem created by the failed deregulation plan, allowing the utilities to run up huge debts that resulted in the state stepping in to buy power for utility customers.
But instead of just responding to criticism from the Republican candidates, Davis is trying to turn the electricity issue to his advantage by warning that the Republican candidates want to return to deregulation.
"Here's a wake-up call," Davis told the state Democratic Party Convention in Los Angeles last month. "California will return to this disastrous deregulation scheme over this governor's dead body."
When the utilities resume buying power, Davis wants the rates that utilities charge customers to be set by the Public Utilities Commission, his spokesman said, instead of being based on the pass-through of market costs envisioned by the original deregulation.
"Essentially, we will be back where we were," said Steve Maviglio, the governor's press secretary.
But with a notable difference: Utilities would be buying more power on the wholesale market, because they sold most of their power plants under deregulation.
Former Los Angeles Mayor Richard Riordan agrees with Davis that the PUC should set rates for consumers. But unlike Davis, Riordan thinks there is no need for federal price caps on the wholesale market where the utilities would buy most of their power.
"You just can't charge the consumer anything you want," said Riordan. "So I believe there has to be regulation on the consumer end. I don't believe you need it on the other end."
Secretary of State Bill Jones also opposes federal price caps on wholesale power and wants to recraft deregulation to maintain some control over consumer rates. But he talks of "scrutiny" and "oversight," not "regulation."
"I would move us back to a process where you have the cost, the debt, the decisions in the private sector, with public sector oversight," said Jones. "It worked for many years."
Only Simon favors complete deregulation of the retail rates charged customers and the price of the power that utilities would purchase on the wholesale market.
"I would be more in favor always of a free-market arrangement, where both sides of the equation were floated," said Simon.
The Republican candidates say the deregulation plan enacted in 1996 was seriously flawed, because the rates utilities could charge their customers were frozen as the price that the utilities paid to buy power on the wholesale market soared.
The GOP candidates criticize Davis for failing to push for action, such as early rate increases or cheaper long-term power contracts, that could have preserved the creditworthiness of the utilities and avoided large rate increases last spring for utility customers.
The Davis administration also is criticized for signing $43 billion worth of long-term power contracts at the peak of the market. The contracts, once hailed as a way to tame wholesale power prices, are now regarded as a costly burden that could force Californians to overpay for electricity for a decade.
Davis is trying to renegotiate the contracts to obtain lower prices. The state asked federal regulators this week to overturn the contracts, contending they were signed while power sellers were manipulating the market to drive up prices.
"He (Davis) didn't create the problem," said Secretary of State Bill Jones, one of the Republican candidates for governor. "He created the crisis, and that is what we are paying for now."
One of the things that is not clear is what the electricity system will look like when the utilities are able to resume buying power for their customers, relieving the state of the task.
The deregulation plan envisioned that the rate freeze would be lifted after utilities paid off their long-term debt. The utilities then would charge their customers market-based rates that passed along the cost of producing or purchasing the power.
Rates charged customers under the regulated system were set by the state Public Utilities Commission. Under deregulation, the utilities would set their own market-based rates, but they could be reviewed by the PUC to ensure that the power purchases were prudent.
After San Diego Gas & Electric paid off its debt and became the only California utility to be deregulated, the soaring price of power on the wholesale market in spring 2000 was passed along to customers, causing bills to double and triple before SDG&E rates were capped by legislation.
Davis spent the last half of 2000 unsuccessfully urging that a cap be placed on wholesale power prices by the Federal Energy Regulatory Commission, which finally imposed a cap in June of last year after the market had peaked and prices were falling.
Meanwhile, Pacific Gas and Electric and Southern California Edison ran up a $13 billion debt in the last half of 2000 and were no longer able to borrow by January 2001, when the state began buying power for their customers.
It's not clear when the utilities will be able to resume buying power. Among other things, the largest utility, PG&E, filed for bankruptcy in April and is trying to work out a reorganization plan in federal court in San Francisco.
