Schwarzenegger Wants Large Electricity Users to Be Able to Find Best Deal

Schwarzenegger Wants Large Electricity Users to Be Able to Find Best Deal

San Jose Mercury News, Calif. - April 29, 2003

In his first major statement on energy since he said the issue would become his central focus, Gov. Arnold Schwarzenegger on Wednesday called for giving large electricity users the freedom to bypass utilities and shop around for the best deal for power.

The position, while not unexpected, drew applause from business interests and pro-market supporters but prompted concern from leading Democrats and consumer advocates, who said they worry residential users would face higher costs as a result.

However, the Republican governor vowed those remaining with utilities would not bear an additional burden. And any plan giving customers the right to bypass utilities and buy power from independent generators would have to be approved by the Democratic-controlled Legislature.

In outlining his policy in a letter to the Public Utilities Commission, Schwarzenegger stepped squarely into the contentious debate over how to reshape California's energy market in the aftermath of the state's disastrous crisis of 2000-01.

Schwarzenegger emphasized many of the policies being pushed by the California Public Utilities Commission. The governor endorsed renewable energy, conservation and so-called "demand-response" programs that allow consumers to see when power prices fluctuate and tailor their use accordingly.

The governor asked the regulators to move up a deadline for utility companies to have higher energy reserves. He said that would help forestall an energy shortage.

The utilities are supposed to maintain a 15 percent reserve by 2008, but Schwarzenegger wants the date pushed up to 2006, a year some energy experts warn could see the return of blackouts.

Also, Schwarzenegger requested that the commission speed up writing rules that would allow and encourage utilities to lock up power through long-term contracts with suppliers. Experts believe long-term contract swill help utilities keep prices down and stimulate investment in power plant construction by independent generators.

"Enacting these measures will encourage investment in California's energy infrastructure, ensure long-term electricity reliability and reduce the likelihood of blackouts," Schwarzenegger said.

The letter is the first piece of the administration's initiative to bring greater stability and lower prices to the state's electricity market. In addition, Schwarzenegger is exploring reorganizing the state agencies that govern energy.

The governor's stance won praise from most quarters as a good start on a complex and difficult matter.

"It's rather skeletal at this point, but I think it's certainly a step in the right direction," said Assemblyman Joe Canciamilla, a moderate Democrat from Pittsburg who has advocated for greater competition in the electricity market.

"There's nothing in it that is particularly controversial," Canciamilla added. "It begins to identify the course he wants to take, but we're still going to have to see where the details lead us."

Severin Borenstein, the director of the University of California Energy Institute, called the governor's plan an important opening move appropriately aimed at stimulating competition.

"The good news for Wall Street is the governor is willing to step into this mess and put his stake in the ground," Borenstein said.

Once state regulators clear the way for utilities to use long-term contracts, it will give private producers and investors the confidence they seek to build more power plants, said Jan Smutny-Jones, the executive director of the trade group Independent Energy Producers.

But the governor's backing of direct access for large customers irked some Democrats and consumer advocates. The state froze direct access during the height of the energy crisis, and currently 15 percent of California's energy load is from direct access customers.

Bob Finkelstein, executive director of The Utility Reform Network, said lawmakers promised consumers would be better off when the state first attempted to deregulate the energy market in the late 1990s. In the end, consumers got hit with a 40 percent increase in rates.

"The promises made at the outset of these debates don't mean anything," Finkelstein said.

Assembly Speaker Fabian Nunez, D-Los Angeles, also assailed Schwarzenegger's approach.

"The governor's initial proposal -- takes us down a path well-traveled before and one that created the energy crisis and left consumers vulnerable to profiteering by out-of-state power generators," Nunez said.

"It again trusts the so-called 'invisible hand' of the marketplace that in the past has picked the pockets of California consumers and businesses alike."

For Sen. Debra Bowen, the Democrat from Marina del Rey who heads the Senate energy committee, the big unanswered question is whether federal regulators can do their job and police wholesale suppliers if the state moves toward a more deregulated market. A recent report issued by Attorney General Bill Lockyer, also a Democrat, said there is little evidence that federal regulators are up to the task.

The governor's plan, as outlined on Wednesday, appears to be a measured approach toward reforming the energy market, Bowen said.

"I don't think it's a bad thing to go slow in formulating energy policy. I mean let's not have another shotgun marriage," Bowen said, alluding to the ill-fated deregulation plan pushed through the Legislature in 1996."The price of the last shotgun marriage was pretty high."

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