Experts: Energy deregulation holds major pitfalls

by Janis Mara, Oakland Tribune

A move toward deregulating part of California’s electricity market
holds major pitfalls for the state and residential customers, experts

The state Public Utilities Commission voted 4-1 last week to
investigate whether it has legal authority to reinstate direct access.
Direct access allows individual ratepayers, as well as big energy users
such as universities and businesses, to use electricity providers other
than their regular utilities.

California’s first foray into deregulation in 1996 sparked a massive
statewide electricity crisis in 2000 and 2001 and the bankruptcy of the
Bay Area’s major utility, Pacific Gas & Electric. PG&E has
since emerged from bankruptcy, and deregulation was suspended in 2001.

"I think that’s a story line everyone remembers with regret,"
said Peter Rodriguez, an associate professor at the Darden School of
Business at the University of Virginia. "It had awful consequences that
no one would want to repeat."

Some experts said direct access holds little benefit for residential consumers.

"Manufacturing facilities, big facilities like hospitals and
manufacturing facilities would be advantaged through those kinds of
purchasing agreements because they can purchase a large block of
energy" and use their purchasing power to get lower prices, said
Richard Holober, executive director of the Consumer Federation of
California, a consumer advocacy group based in San Mateo.

Individual customers lack that clout, he said.

Businesses with multiple locations, such as the University of
California, would benefit most from the proposed deregulation, agreed
Norm Plotkin, executive director of the Sacramento-based Alliance for
Retail Energy Markets. But, he said, the move would benefit residential
customers by giving them more choices.

Plotkin’s group, composed of independent energy companies that
hope to garner more customers, argued in a December petition to the PUC
that the market had stabilized enough to reinstate direct access by
next year. That petition led to last week’s reconsideration of the

"The heart of the matter is giving consumers the ability to have
choices," Plotkin said. "As a PG&E customer, I want to shop
providers. I want a responsive provider."

In a rare show of unanimity, both consumer watchdogs and
PG&E decried the PUC’s vote. The deliberation process could stretch
into 2009.

"Deregulation is not a good idea," said Darlene Chiu of
PG&E. "It has taken us a long time to get back on our feet (after
the energy crisis)."

The utility buys energy in advance based on projected usage, she said.
If existing customers defect, "what are we going to do with all the
energy we’ve bought in anticipation of delivering it to our customers?"

Also, deregulation is unfair to ratepayers who remain with
PG&E, she said, because PG&E bills still reflect small
additional charges to help PG&E pay off debts from bankruptcy.

"My concern … is making sure all customers are paying fairly
and that our utility companies can plan adequately for their future,"
said Emily Rusch of CalPIRG, a consumer advocacy group that also
opposes deregulation.

Plotkin and Rodriguez counter that California’s earlier
deregulation was done improperly, and Plotkin maintains that energy
deregulation has been successful in other states. Eighteen states,
including Texas, Maryland, Illinois and New York, have deregulated
energy, he said.

Rodriguez said direct access saves the average New York
customer 5 or 6 percent off monthly electricity bills, or about $4.20
off a $70 bill.

Last month, however, Consolidated Edison of New York requested
a rate increase that would add about $12, or 17 percent, to the average
$70 bill.

"The payoff (of deregulation) is pretty modest, and the
downside is high," Rodriguez said. "The truth of it is that the average
person won’t see anything approaching excitement when they open their