How Power Deregulation Will Affect Consumers, Businesses

The Public Utilities Commission’s decision Tuesday to fully deregulate California’s electricity market by Jan. 1, years earlier than expected, will mean some pretty powerful changes for small businesses and individual consumers.

Residential electricity users will enjoy savings on their energy bills as residents of communities or members of groups that organize volume buying of electricity.

Here are some answers to key questions:

*

Q: Why will the PUC’s action lower my energy bills?

*

A: The PUC and so many energy companies can contemplate bargain rates because there is great fluctuation in the price of electricity, as much as 100% in the course of a single day. Consumers have never been aware of that because electricity was regulated, the local utility was a monopoly supplier, and the only price consumers knew was the total on their monthly bills. But with shifts in technology and electricity usage, that regulated system produced a vast oversupply of power plants and electricity providers.

Eliminating much of this regulation will in effect allow consumers and business customers to buy power from companies that can supply it cheaply.

What we are witnessing is the transition to a price-sensitive market for this essential commodity. Already, the mechanisms are in place for bringing about such pricing. Electricity “futures” are traded in commodity markets just like bushels of corn. And many power plants are about to be mothballed--with electricity users bearing the cost of their retirement, in exchange for lower electricity prices now and in the future.

Because of the PUC’s decision Tuesday, lower prices will come sooner to more residents and business people in California.

*

Q: Will consumers be able to choose their power suppliers in the same way they’ve been selecting long-distance telephone providers?

*

A: Not quite the same. Theoretically, consumers could switch to a new supplier, but the electricity marketing companies, looking for volume customers--groups that in the aggregate use more than 20 kilowatts of electricity at peak demand--will be unlikely to seek out individual users, who in the average home use only 1 kilowatt.

More likely is that individual consumers will be asked to join purchasing groups to get lower electric rates. Their city government, or even their housing subdivision, will be able to buy electricity on behalf of residents and get the equivalent of volume discounts. Customers will be grouped in profiles, rather than solicited individually, explains William Reed, vice president of regulatory affairs at Enova Corp., the company formed from the proposed union of San Diego Gas & Electric and Pacific Enterprises.

The city of Palm Springs has already declared that it will be in the market to buy power at the best possible price for its residents. All consumers will see an immediate 10% reduction in their electric bills come Jan. 1, thanks to a state law passed last year. But they will pay back that windfall over the next four years in small surcharges to write off the costs of retiring inefficient generation plants.

*

Q: Who will be the major beneficiaries of Tuesday’s decision?

*

A: Small businesses, retail chains and commercial operations. In the PUC’s original proposal to phase in electricity deregulation over four years--a timetable that was scrapped by the agency’s decision Tuesday--small businesses were to wait in line while the immediate benefits of deregulation went to big users such as major universities, governmental departments and large corporations. Because these entities make such huge electricity purchases, power companies from around the nation are eager to sign them up.

Now everybody can organize to buy electricity at the best possible price. The California Retailers Assn. and several organizations of building owners have signed up to buy electricity through New Energy Ventures, a Los Angeles firm headed by a former president of Southern California Edison. New Energy is a power reseller that buys surplus electricity from utilities and resells it at bargain rates. There will be many such companies set up in the years ahead.

“I can see major home builders in the future buying electricity before they build their subdivision and then becoming partners with us in selling power to their home buyers,” says Michael Burke, vice president of New Energy.

*

Q: What will happen to customers of municipal utilities such as the Los Angeles Department of Water & Power and municipal companies in Pasadena, Glendale and elsewhere?

*

A: Ultimately, they will be able to buy power competitively just like all other California residents, although the Los Angeles City Council theoretically will have to approve deregulation for the DWP’s customers. The situation is more political than economic. DWP’s residential customers enjoy lower rates than customers of private utilities, such as Southern California Edison. But those low residential rates are subsidized by the DWP’s charges on big customers such as USC and UCLA.

However, with deregulation, those big customers will be free to buy from electricity suppliers from across the nation. But defections by big customers could force the DWP to raise rates to residential users. The upshot is that the DWP, like all other utilities, will have to compete to hold on to its own customers large and small.

Main story, A1