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California deregulation promises turn into bad joke

ALL IT AN APRIL’S FOOL joke on consumers. Or the
end of the rate freeze that wasn’t. Whatever the case,
Sunday marks the official end of the transition period for
deregulation and its promise of lower electricity rates on
April 1.

By Eve Mitchell – Business Writer Oakland Tribune

Things sure didn’t turn out that way.

"It’s good to remember what people were promised. That’s what sold the whole thing and that’s not what they
got. This is a terrible April Fool’s Day joke," Bill Ahern, senior policy analyst with the West Coast regional office
of Consumers Union, said Friday. "Consumers are stuck with a multibillion-dollar bill for a failed experiment
that produced none of the benefits the competitive market was supposed to deliver."

Assembly Bill 1890, the much-maligned deregulation law passed in 1996, set a March 31, 2002, deadline for
the end of deregulation’s transition period and rate freeze. Under the law, rates would be frozen during the
transition for Pacific Gas and Electric Co., Southern California Edison and San Diego Gas & Electric.

To appease consumer groups, AB 1890 required a 10 percent rate cut for residential and small business
ratepayer during the transition period. (In a future procedure, the state Public Utilities Commission will have to
decide whether to continue the rate cut.)

Under deregulation, a portion from the frozen rates were earmarked to pay off utility debts for building
unprofitable power plants in a regulated era. If a utility managed to pay off its debts early, rates would be
lowered prior to the deadline.

In March 1999 — before the energy crisis unfurled the next year — PG&E had actually filed a plan with the PUC
to lower rates no later than the March 31, 2002, deadline. It called for an 11 percent cut for residential
customers — which on top of the earlier 10 percent cut would have resulted in a 21 percent reduction from
pre-deregulation rates.

The plan — which for the time being is suspended — also called for a 13 percent decrease for small businesses
and up to a 43 percent cut for large industrial and agricultural customers.

Enter the energy crisis in the summer of 2000. It turned deregulations’ competition-driven economic theory
into chaos and consumer anger. Driven by a shortage of electricity and power plants, the price of wholesale
power soared and rolling blackouts ensued. The state began buying power for the cash-strapped utilities in
early 2001.

Instead of looking to lower rates as promised under deregulation, the PUC was forced to pass two rate hikes.
The first, in January 2001, was a 10 percent across-the-board hike. In May, the PUC passed a second increase,
which resulted in residential customers who use a lot of electricity seeing bills increase an average of 37
percent. Large industrial customers saw rates climb an average of 49 percent.

"Along the way to the deregulated marketplace we got mugged," said John Nelson, spokesman for PG&E,
which filed for bankruptcy last April after running up $9 billion in power-buying debts.

"Instead of the large rate decreases everyone in California thought would be coming … because of regulatory
failures and an out-of-control marketplace, (California) has some of the highest energy prices," he said.

Even though wholesale electricity rates began dropping last spring, rates for customers have not. It’s expected
they will stay steady until at least next year because the state needs the revenues to help pay for the power it
has been buying.

"We had hoped that up until the energy crisis that at the end of the rate freeze we could lower rates," said
Paul Clanon, director of the PUC’s energy division.

A report released this week by the West Coast office of Consumers Union says the energy crisis is far from being
over and that the state needs to do a better job of developing a coordinated energy strategy.

"When California restructured it’s electricity market, the system lost integrated planning, effective oversight,
and investment in new energy infrastructure," said Ahern of Consumers Union.

The report urges Gov. Gray Davis to hold state energy agencies accountable when it comes to funding
conservation programs this year and to renegotiate the $43 billion cost for long-term power contracts.

The report also notes that some measures taken last year to deal with the energy crisis will expire in 2002. For
example, a price cap on wholesale power enacted last year by the Federal Energy Regulatory Commission
expires on Sept. 30. In addition, the state’s authority to buy power ends Dec. 31.

"California’s energy crisis is far from over," said Ahern.

The Consumers Union report can be viewed online at http://www.consumersunion.org/telecom/driftrptwc.htm.

Associated Press contributed to this report.

http://www.oaklandtribune.com/Stories/0,1002,10834%257E496772,00.html

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