Posted at 9:40 p.m. PDT Thursday, October 5, 2000

Power officials seek limit on profits Utilities group, PG&E want to turn back to regulation BY STEVE JOHNSON Mercury News

In a move that could have enormous implications for consumers, officials from PG&E and a major utility group are pushing plans that some experts say would essentially re-regulate California's power industry.

Under the proposals by Pacific Gas & Electric Co. and the California Municipal Utilities Association, the price of power would be set the way it used to be. It would be severely limited by regulators who would tell power generators how much profit they could make.

The requests from PG&E and the association -- which represents 30 publicly owned electric companies -- highlights the growing dissatisfaction with deregulation, which many expected to lower the price of power. Instead, power shortages and skyrocketing costs have sparked concerns from consumers and industry.

The plan proposed Thursday by the association, whose members provide electricity to one of every four Californians, also calls for a new government agency to oversee all sales and transmission of power.

In legal papers filed with the Federal Energy Regulatory Commission, which could approve the proposals, the group said it hasn't given up on the idea that power producers should be able to charge what the market will bear.

But as it is now, ``there is no evidence that markets will ensure just and reasonable rates in the near future,'' the association said. ``The bottom line is that municipal utilities believe a stable environment must be created for the benefit of all consumers.''

Officials at PG&E offered a similar price-cap proposal in papers filed Thursday with the Independent System Operator, which now oversees much of the state's power grid. But PG&E spokesman John Nelson said the cap wouldn't have to be permanent.

``We don't view it as a return to regulation. We view it as a necessary short-term step to try to bring prices back in line,'' Nelson said. Although his company still sells power from its few remaining plants and benefits from high electricity prices somewhat, it buys most of its power from other companies and has gone deeply in debt.

Nelson said it was essential to ``rein in these unconscionable prices where people are charging up to 10 times what it costs to produce electricity.''

When the sale of electricity was officially opened up to competition in 1998 under the state's energy deregulation law, it was widely assumed that competition would keep prices low. But this summer, after the state-imposed freeze on electricity rates was lifted in San Diego, prices immediately doubled and even tripled in that city. There are concerns that once the freeze is lifted in Northern California, similar price hikes could hit.

The Federal Energy Regulatory Commission already is investigating California's energy problems as a prelude to possibly ordering changes. But officials with power-generating firms said returning the system to the way it used to be, when government regulators determined how much profit could be made, is not a reasonable solution. Moreover, such caps could discourage companies from building power plants, according to Jan Smutny-Jones, executive director of the Independent Energy Producers Association.

``I think you'd see a great deal of enthusiasm for building power plants in California dry up,'' he said. ``It would create a great deal of uncertainty.'' That would be counter-productive, he added, because one of the best ways to bring electricity prices down is to increase the amount of electricity supply by building more power plants.

Bill Highlander, a spokesman for the San Jose-based Calpine Corp., which owns numerous power plants in California, also said he believes a deregulated system where competition is allowed to flourish will result in lower prices.

``That's still the best solution,'' he said, ``and when you get enough generation on line, I think you'll see the market reacting differently, and we would hope you'd see the cost going down, just because of supply and demand.''

Under the plan by the utilities association, the Independent System Operator, which is a non-profit corporation headed by a board with some ties to power firms, would lose its job. A new governmental agency would oversee the entire power grid.

How the new agency would work isn't clear, but Michael Shames, of the Utility Consumers' Action Network in San Diego, said it might be an improvement, because the Independent System Operator lacks oversight of the part of the grid that serves municipal utilities.

By giving it oversight over all of the grid, ``it could strengthen the ability of the state to fend off market power abuses of private generators,'' he said.

But Terry Winter, the Independent System Operator's president, said he saw no reason to make such a change. ``From my point of view, it's headed right back to re-regulation,'' he said, and is unneeded because, for the most part, his 2-year-old agency ``works quite well.''

Although Loretta Lynch, president of the California Public Utilities Commission, was noncommittal on the proposals, she said, ``I certainly welcome any creative solution to the out-of-control wholesale market. . . . We've got to stop these exorbitant prices.

http://www.sjmercury.com/premium/local/docs/power1006.htm

-- Martin Thompson (mthom1927@aol.com), October 06, 2000

Answers

That would be a classic mistake. They haven't given it enough time to work.

-- Wellesley (wellesley@freport.net), October 06, 2000.

I live in Northern California (PG & E customer), and I can tell you that people here are scared out of their wits, not only about the coming, higher fuel costs, but what's going to happen to PG & E. A $2.2 billion dollar loss, just over the summer, they can tolerate long--NOT.

-- JackW (jpayne@webtv.net), October 06, 2000.