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The San Diego Union-Tribune
Jan 17, 2004 - 01:00 AM

by Craig D. Rose; STAFF WRITER

Proposals renew debate over state's electricity future

Gov. Arnold Schwarzenegger met with top energy aides to discuss pro-deregulation plan
Look for fresh sparks in the debate over California's electricity future in the coming weeks.

Gov. Arnold Schwarzenegger met with top energy aides late last week and is expected to make public soon a detailed version of the pro-deregulation plan he laid out during the recall campaign.

Sen. Dianne Feinstein, D-Calif., meanwhile, has written to urge the governor to halt further deregulation and guarantee that the bulk of the state's smaller electricity customers -- 70 percent by her estimation -- be protected by regulators.

But Feinstein also proposes to allow up to 30 percent of the state's largest users to cut private power deals outside the regulated market.

For consumer advocates both proposals are flawed.

"The problem is that there is no such thing as partial deregulation," said Douglas Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica. "The debate should be over how we re-regulate the electricity system."

And one key legislator says he continues to explore a ballot initiative to mandate a return to a fully regulated power system, similar to that which served the state for most of the past century.

The backdrop to the debate is a growing realization that California could face power shortages again within two years, or sooner under worst-case scenarios.

A host of new plant projects are stalled because of regulatory uncertainty, while older, inefficient and polluting plants continue to operate without plans for upgrades or with owners who are moving to mothball them.

James Sweeney, a Stanford University professor who helped craft the governor's energy policy during the campaign and met with him last week, said a workinggroup has proposed a system under which large electricity users are allowed to seek cheaper electricity deals outside a regulated system.

Sweeney said his proposal would require that these larger users bear the riskof their decision and not be allowed to shift costs to smaller users. He addedthat large users should also shoulder a share of the billions in crisis-related costs that utility customers continue to pay in their monthly bills.

The Stanford professor said he did not believe utility companies should getback into the business of building electricity generating plants, preferring to leave that role to unregulated companies.

During the state's experiment with deregulation, San Diego Gas & Electric and other utilities were barred from building plants and sold off many of their generating units to unregulated companies.

But expectations that market forces would provide sufficient power at reasonable prices collapsed during the crisis of 2000 and 2001, a time of soaring electricity bills and rolling blackouts.

In an interview yesterday, Feinstein expanded on thoughts she sent in arecent letter to the governor. The senator said she supports a return to power plant construction by regulated utilities, including SDG&E.

"I don't care who builds power plants as long as they get built," said Feinstein.

She described her support of a mixed system -- partly regulated, partly deregulated -- as a practical compromise. In addition, she said some users had the wherewithal to navigate the open market for electricity.

"I sort of think the big users are able to fend for themselves," said Feinstein. "It is really the small users, the 70 percent, that we have to be concerned about protecting."

State Sen. Joseph Dunn, D-Garden Grove, who led the state's investigation into the power crisis and now supports a return to regulation, said moves toward deregulation are doomed in the California Senate.

But Dunn said there is support for continuing to allow some large users to cut private power deals, despite his personal opposition. He added that he is not convinced that Feinstein's staff understands the implications of allowing 30 percent of the power market to cut private deals.

"That would require shifting costs to smaller customers," said Dunn.

He and other opponents of the private deals -- known as direct access agreements -- argue that smaller customers end up carrying the bulk of the costs for maintaining the power grid and pay higher prices for electricity from the same plants providing low-cost power to big users.

"The negative implications of 30 percent of the market going to direct access would be deadly, and I would never support an energy policy that required individual customers to subsidize big users. Never."

Dunn added that he and others continue to explore the possibility of a ballot initiative to return the state to a fully regulated system.

"Every poll shows strong support," he said. "Some polls say 75 percent support for reregulation, others as high as 90."
Contact the author Craig Rose: (619) 293-1814;

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