If the California Public Utilities Commission votes to end “direct access” next month, millions of California businesses will lose the right to buy electricity from the provider of their choice. In doing so, they will lose the flexibility to control an important cost.
Direct access is the ability to enter into a contract with the producer or provider of your choice. Without direct access, everyone will be forced to buy electricity purchased by the California Department of Water Resources.
Most of the DWR’s power was purchased under long-term contracts over the past six months. Many contracts were negotiated when electricity was sold at historically high prices. Terms of these contracts cannot be attractive, especially now that wholesale electricity prices are falling rapidly.
Why would the PUC take such action? First, because it can. The state Legislature gave the PUC the authority to do so earlier this year in Assembly Bill 1X.
Second, Wall Street wants assurances that someone will buy the high-priced power before they will issue bonds to cover the billions of dollars spent by the DWR to date. Since many residential customers will be protected from higher prices, most of the burden of paying for the higher-priced power will fall on business and industry. The PUC proposes to remove business and industry’s flexibility of negotiating terms and conditions with direct-access providers.
Green Energy
One of the most important features that will not be available to anyone without direct access is green energy. Until recently anyone could choose to buy electricity produced by renewable energy resources by entering into a “direct access” contract. Over the past few years many individuals and businesses chose this option.
This increased demand provided incentives to investors to build more facilities employing renewable resources. Without market demand of this type, investors are less likely to invest in additional renewable power-producing plants.
Obviously someone has to pay for the DWR’s contracted electricity. But, we don’t have to sacrifice direct access and business viability to do that. The governor has not purchased 100 percent of our power needs. There is room for direct access power without “stranding” the DWR power supply.
In a healthy economy, electricity demand will steadily increase. Industry and business are willing to pay reasonable “exit fees” to switch to a private power contract. These fees would provide revenue to DWR.
Impact On Profits
Furthermore, many business customers will decide to keep the DWR as their power provider. The original purpose of electric industry restructuring was to help California be economically competitive. What will happen if direct access is no longer allowed? Business will shoulder huge increases in the cost of electricity.
In some businesses, the increases will severely reduce profitability and could lead to bankruptcy or relocation outside the state. Already many restaurants, small grocers, hair salons and other businesses have closed their doors, reduced their services or increased their prices. Plastic formers, die casters and other energy-intensive businesses have curtailed operations because of high electricity costs.
Without direct access, businesses will leave the state and jobs will be lost. Total electricity demand could decline below the amount already contracted by the DWR.
Reversing a downward trending economy is not easy. Once on that slippery slope, tax revenues and electricity revenues will decline, forcing the Legislature to reduce essential services to its citizens. A declining economy with higher prices is not in anyone’s best interest.
Solutions must be found to allow business to prosper in our state while providing the revenue necessary to pay off the electricity contracts.
The ability to choose the electricity provider that best serves a business is critical to continued prosperity and to continued improvement in our environment through the use of green power.
I urge you to contact Gov. Gray Davis and the CPUC commissioners and let them know that business deserves the right to direct access.
Rohy leads the energy committee of the San Diego Regional Chamber of Commerce and is chairman of the San Diego Regional Energy Office, a nonprofit organization providing energy information and programs to the area.
