Firms want off grid 
Companies wish to deal directly with utilities and avoid helping state foot 
the bill. 
June 15, 2001 
By KATE BERRY
The Orange County Register 
California's business community is locked in a battle with energy regulators 
and lawmakers about how deregulation will ultimately pan out - and whether 
companies will be stuck paying most of the tab for the state's electricity 
crisis. 
Business groups want to continue down the road toward deregulation. They are 
lobbying politicians to pass legislation that would let companies buy 
electricity directly from power suppliers, bypassing the state's regulated 
utilities. 
"In our hearts, we still believe we can make this a competitive market and 
get some cost savings,'' said Bill Dombrowski, president of the California 
Retailers Association, which represents 9,000 stores in the state, including 
Home Depot, Target and Albertson's. 
But Gov. Gray Davis' foray into long-term contracts, agreeing to pay $43 
billion over 10 to 20 years for power, could squash that ambition. 
The state's Public Utilities Commission delayed a proposal June 7 to restrict 
companies from signing so-called "direct access" contracts with power 
providers. Regulators are expected to rule on the proposal next week. 
The debate over direct access is at the heart of a complicated attempt to 
solve California's costly power crisis. 
It will determine whether businesses, with residential customers, pay for the 
bulk of the state's future energy purchases. It also could determine whether 
Southern California Edison, the state's cash-strapped No. 2 utility, will 
avoid bankruptcy - and whether deregulation will survive in any form. 
"The governor got it exactly wrong,'' said Peter Navarro, an economics 
professor at the University of California, Irvine, who is running for the San 
Diego City Council. "The long-term contract strategy is a de facto 
re-regulation of the market because it eliminates the ability of industrial 
customers to bargain for a lower price.'' 
Direct access was a key component of the 1996 deregulation law, designed to 
break the monopoly of California's utilities. Under this concept, all 
customers could directly access an energy provider other than their regulated 
utility - just as they pick a long-distance phone company. 
Currently, 11,000 businesses and government entities have direct access, as 
well as about 77,000 residential customers - but some energy service 
providers, such as Enron Corp., are dropping their residential customers. 
Direct access is at the center of the latest Edison bailout plan, sponsored 
by Assembly Speaker Pro Tem Fred Keeley, D-Boulder Creek. Under the plan, the 
3,600 largest businesses would agree to pay $3.1 billion of Edison's debts 
over 15 years. In exchange, businesses would be allowed to secure their own 
power contracts by 2003. 
But energy regulators may not let companies off the hook at such a bargain 
price. 
David Gamson, an energy adviser to PUC Commissioner Geoffrey F. Brown, said 
regulators are concerned that if businesses flee the system, the state will 
be stuck with too much electricity under long-term electricity contracts 
through 2021. That would mean residential ratepayers would be stuck paying 
the bulk of the $43 billion in future power costs. 
Complicating the issue is Wall Street. The state's bankers, led by J.P. 
Morgan, are nervous about selling as much as $13.4 billion in planned state 
bonds if businesses - now the largest ratepayers in the state after 
governments - find a way out of the system. The bonds are meant to repay the 
state for $8.2 billion in power-buying costs so far this year and to cover 
some future costs. 
Business and residential electricity customers would repay the bonds through 
a surcharge on their utility bills. If businesses are allowed to sign on with 
outside energy providers, that revenue stream would be in jeopardy. 
"We have companies now that want to get below-cost power from the state, but 
when the market turns, they want to leave,'' said Lawrence Lingbloom, chief 
policy adviser on energy to Sen. Debra Bowen, D-Marina del Rey. "Remaining 
customers would be left with those costs, and it would create a death spiral 
for the revenue stream.'' 
Consumer groups oppose direct access because it would allow businesses to 
avoid paying most of the costs of the energy crisis. 
"Direct access is a policy that should be dead because it's a key adjunct to 
deregulation,'' said Doug Heller of the Foundation for Taxpayer and Consumer 
Rights in Santa Monica. "But right now, it's a policy that's driving all the 
deals.'' 
Even as regulators and consumer groups try to snuff out direct access, 
business groups are lobbying to save it - with the help of key legislators. 
Two bills, one sponsored by Bowen, who heads the Senate energy committee, and 
a second by Assemblyman Dave Kelley, R-Hemet, would rescind language in 
previous legislation that gave the Public Utilities Commission authority to 
block direct access. 
Both proposals would require businesses to pay the state an "exit fee.'' 
Those fees haven't yet been determined, but they would include a surcharge or 
a complicated calculation in which businesses would pay a percentage of 
future energy purchases. 
Companies say they don't want to pay. 
"Direct access has allowed businesses to enter fixed- price contracts to get 
stable rates,'' said Shawn Covell, senior manager for governmental affairs at 
Qualcomm Inc. in San Diego. "It's really unfair when you have businesses that 
have taken their time to protect themselves, to punish them.'' 
Qualcomm, which makes telecommunications equipment, saw its energy bills 
double to $6 million last year. The company signed a contract with an energy 
service provider, Strategic Energy in Carlsbad, and capped its rates. 
Otherwise, Covell said, its electricity costs would have doubled again this 
year. 
Sweetwater Union High School District in Chula Vista is a direct-access 
customer. The district, with 35,000 students, spends about $2 million a year 
on energy, said Jim Clark, its energy manager. His district won a "watchdog 
award'' for efficiency from the San Diego County Taxpayers' Association 
because it locked in lower rates. 
When Gov. Gray Davis announced in January that the state would begin signing 
long-term contracts, Clark extended the district's contract through 2006 at 
11 cents per kilowatt-hour - enabling it to save $1 million a year, he said. 
"As soon as Davis made the announcement, we knew the market was going to 
move,'' he said. "The market only changes when people buy. When the state of 
California steps to the plate, the price goes to the moon.'' 
Davis has maintained that the long-term contracts between the state and power 
suppliers helped bring down high spot market prices in recent weeks by 
removing demand from that market. 
But Clark and others who want to go the direct-access route fear the 
government will force businesses to pay for all the costs of the energy 
crisis, including rate increases of 38 percent to 49 percent, plus surcharges 
to pay off $13.4 billion in forthcoming state bonds. 
"Businesses will be required to pay for the mistakes that the governor and 
the Legislature have made,'' he said. "Who else is going to pay for it? 
Ultimately, it will fall on the heads of all consumers.'' 
Register staff writer Hanh Kim Quach contributed to this report.