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California Focus: State’s Electric Future Now Up to PUC

California’s electric future now lies squarely in the hands of five virtually anonymous and untouchable commissioners appointed by two governors. What they do over the next year will in large part determine how much power will cost, who stays on the state’s main grid and who might be allowed to leave, who will build power plants and much, much more.

Almost two months after Governor Arnold Schwarzenegger appointed two new members for five-year terms on the state Public Utilities Commission, there’s every indication that whatever electric plan Arnold wants, he will get. This is because PUC president Michael Peevey, a holdover Gray Davis appointee whose wife is a Democratic assemblywoman, essentially shares the pro-corporate attitudes the governor has evinced since he took office.

But uncertainty remains. For any really large changes the PUC attempts will also have to pass a Legislature with hard feelings toward Schwarzenegger on the energy front. That atmosphere derives from his September veto of AB 2006, a bill by Democratic Assembly Speaker Fabian Nunez that would have allowed a resumption of power plant construction by big utilities like Pacific Gas & Electric, San Diego Gas & Electric and Southern California Edison.

This measure would also have re-regulated electric rates for all California customers, residential and business alike, on a pure cost basis, while guaranteeing rates would be high enough to provide respectable profits for companies investing in power generation.

In short, this would have been a return to most of what governed before the disastrous deregulation plan that led to the energy crunch of 2000 and 2001, along with the sky-high electric prices that have prevailed since. It is precisely what every poll on the subject indicates the vast majority of Californians want.

But Schwarzenegger nixed the bill, throwing the issue to the PUC, original designer of the failed deregulation plan.

There are clues to what he wants the commission to do, most pointing to a system favoring business customers over small residential power users.

Schwarzenegger won’t get much argument from anyone when he advocates allowing the big utilities to get back into the business of building new power plants in competition with private generating companies.

The rub will come in pricing.

Even though California’s consumers pay among the highest electric rates in the nation, residential ratepayers are nevertheless protected by price ceilings set by the Legislature during the crunch of three and four years ago. Schwarzenegger would like to get rid of that cap, which has resulted in higher rates for big businesses, including some of his biggest campaign donors.

“We bore the lion’s share of the 2001 rate increases,” says Joseph Lyons, energy policy director for the California Manufacturers and Technology Assn. “Rates should be based on costs, instead of one set of customers subsidizing another.”

This view, however, disregards the history of the failed deregulation plan: Big businesses, including many leaders in the CMTA, pushed hard for deregulation because it aimed to let them leave the state’s overall grid and purchase power from the lowest bidder, leaving higher-priced power for smaller customers.

In short, their own greed put big electric users where they are today, and now Schwarzenegger hopes to bail them out.

What’s more, these companies still want to be able to opt out of the grid when cheap power is available, but this time they also want the right to return to the common system whenever they wish. The governor’s preliminary approach would still force them to pay their share of the costs of any new crisis. And he assures the utilities they won’t be stuck with excess power if the big businesses leave.

Opponents, however, say no one has explained how large customers can get the cheapest power without small users having to pay more for whatever power is left over.

Some consumer advocates call this “magical thinking.” Or, as Schwarzenegger might say, he’s after a “fantastic” situation. Fantasy might be a better word.For sure, legislators will have to scrutinize in depth whatever plan Schwarzenegger’s new appointees and their holdover ally adopt. Anything resembling the unanimous, rubber-stamp legislative vote that passed the last deregulation plan figures to cause yet another disaster for this state and all its power customers.

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