State energy contracts must be paid off by users in system

By Ed Mendel  
 SAN DIEGO UNION-TRIBUNE STAFF WRITER 

July 12, 2001 


SACRAMENTO -- California businesses are being hit by big electricity rate
increases, some as high as 100 percent, and they would like to be able to
shop around for cheaper power. 


But state regulators are poised to ban customer choice, or "direct access"
as it has come to be called, because they want to make sure that enough
customers remain with utilities to pay for state power purchases. 


After a month of closed-door talks, the revelation that the state has signed
$43 billion worth of long-term power contracts at above-market prices helped
scuttle an attempt to work out a compromise in the Assembly. 






   
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<http://www.signonsandiego.com/news/reports/power/20010712-9999_7m12correct.
html> For the record: Power story correction 

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<http://www.signonsandiego.com/news/reports/power/20010712-9999_1n12enron.ht
ml> Senate panel, energy firm fighting tough 
  

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"If the intent of the big customers is to leave the small customers paying
for those contracts, we are going to fight like hell," said Lenny Goldberg,
a lobbyist for The Utility Reform Network. 


Jack Stewart, president of the California Manufacturers and Technology
Association, said large business users were offering to pay off the back
debt of Southern California Edison, estimated at $3.5 billion, in exchange
for direct access. 


"I thought we were making a lot of progress until the information on the
contracts came out," Stewart said. "We really don't have a way of dealing
with those contracts." 


Now Stewart is suggesting that direct access be slowly phased in over a
period of years and that the long-term power contracts be renegotiated,
perhaps with some being switched from the state to big-business users. 


The manufacturers association and the California Chamber of Commerce helped
organize a business coalition, Californians for Energy Action, that wants a
cheaper alternative to power purchased for utility customers by the state. 


"Many large and small California businesses have seen their electric bills
double," says a newspaper ad being run by the coalition this week. "These
cost increases are a burden that will cause consumer prices to increase,
some businesses to fail and jobs to be lost." 


A rate increase approved by the state Public Utilities Commission for PG&E
and Edison customers in May fell heaviest on business users. The PUC said
that the average residential increase was about 50 percent, while the
average business increase was about 75 percent. 


Legislation that authorized the state to begin buying power in January for
the utilities, who were crippled by a failed deregulation plan, bars rate
increases for residential customers who use up to 130 percent of the
baseline, the minimal amount deemed necessary for a household. 


Senate President Pro Tempore John Burton, D-San Francisco, and other
legislators have argued that large businesses should bear most of the burden
of the failed deregulation plan because it was business, not residential
consumers, who pushed for deregulation. 


Alan Zaremberg, president of the California Chamber of Commerce, said that
forcing businesses to bear a "disproportionate" rate increase will cost
everyone through higher prices for goods and services and possibly a loss of
jobs. 


"If government didn't allow implementation of deregulation in the right
manner," Zaremberg said, "then we all have to find a solution. We are all in
this together, and that's residential and business alike." 


The legislation that authorized the state to buy power also directed the PUC
to ban direct access power purchases, if the loss of rate revenue from the
departing customers would harm the ability to pay off a power bond. 


The state plans to issue a bond of up to $13.4 billion in September or
October to repay the taxpayer-supported state general fund for power
purchases. The bond would be paid off by ratepayers over 15 years. 


Last week, the Senate rejected a bill by Sen. Debra Bowen, D-Marina del Rey,
on a 19-12 vote that would have allowed businesses to shop for power if they
paid an "exit fee" to protect the bond payments. Business groups said the
fee was too large and would not result in lower power costs. 


"I cannot carry a direct-access bill that makes it harder to sell the bonds
or that shifts costs from large users, who leave for cheaper power, to
smaller users and residential ratepayers," Bowen said. 


Burton and Bowen have both criticized Gov. Gray Davis' plan to keep Southern
California Edison from joining Pacific Gas and Electric in bankruptcy. They
say the plan, which includes the state purchase of the Edison transmission
system, is too generous to Edison. 


Both Burton and Bowen have suggested that an Edison bankruptcy may not be a
calamity. But in the Assembly, Speaker Robert Hertzberg, D-Van Nuys,
launched a drive for an alternative Edison rescue plan that was based on
gaining business support by offering direct access. 


Hertzberg asked a former Democratic assemblyman, Phil Isenberg of
Sacramento, to try to work out an agreement among the various special
interest groups: business, labor, consumers and generators. 


The basic plan considered by the Isenberg group would have left "core"
customers -- residences and small businesses -- in a regulated system
receiving power at stable prices from the generators and contracts retained
by the utilities. 


Businesses and other large users, the "non-core" customers, would be free to
shop around for low-cost power by 2003 if they agreed to help pay off the
Edison debt. 


The Edison rate increase for large users would be limited to 50 percent. The
PUC would create a "balancing account" to track costs, issuing a refund if
too much was collected or raising rates if revenue fell short. 


Business and generator groups told Hertzberg last week that they reached
agreement on a general framework, with the exception of the state purchase
of the Edison transmission system and some other issues. But the consumer
and labor representatives opposed the framework. 


Mike Florio of The Utility Reform Network said in a dissenting statement
that an across-the-board allocation of state power costs would be "clearly
unfair" and cause residential users to subsidize direct-access customers. 


Hertzberg said he is considering some of the ideas in the framework
presented by the Isenberg group and may make a proposal in a week or two. 


"We are looking at all the possibilities," Hertzberg said. "We are trying to
do some form of direct access within the current contract structure."