San Diego Business Journal However, Reprieve May Be Short-Lived

Electricity rate relief has come to San Diego , for now. The state Legislature approved a bill late Aug. 30 which will bring immediate utility rate relief to San Diego residents. But the relief may be short-lived.

State Sen. Dede Alpert, D-Coronado, hailed the passage of the bill, which she co-authored with Assemblywoman Susan Davis, D-San Diego.

"I am pleased that the state Legislature passed and sent to the governor Assembly Bill 265," she said. "It is an important first step to protect San Diegans."

The passage of AB-265 came despite extensive debate that almost derailed the legislation before the Aug. 31 deadline. Also, both San Diego Gas & Electric Co. and its parent company, Sempra Energy, opposed this and earlier measures to provide rate relief for local residents, Alpert said.

As an "urgency measure," AB-265 required two-thirds majority in both houses to pass. The bill was approved 30-0 in the Senate and 58-12 in the Assembly. Gov. Gray Davis is expected to sign the bill.

AB-265 establishes a 6.5-cent rate cap on the cost of energy charged to ratepayers, retroactive to June 1. The average bill for residential customers would be $68, down from about $130, she said.

Small-business customers would see similar savings. The rate cap also applies to schools, hospitals and medium-sized businesses, Alpert said.

Calls For Investigation

The bill also requires the California Public Utilities Commission to investigate the purchasing practices of SDG & E; during the summer's rate escalation, and directs the CPUC to ensure that any refunds ordered by the Federal Energy Regulatory Commission are returned to the ratepayers, she said.

It also helps ensure that San Diego ratepayers won't face increased payments in the future in exchange for reduced rates now, Alpert said.

"There is absolutely no 'balloon payment' required by AB-265 at any time now or in the future," she said.

Alpert also said she plans additional steps in the future. She has asked the state Attorney General to monitor the CPUC's investigation to make sure SDG & E; cooperates fully, she said.

"I will continue to lead the fight for a permanent solution that does not stick San Diego ratepayers with these unfair charges down the road," Alpert said. "(They) should never be forced to cover the costs of someone else's mistake."

Doug Kline, spokesman for Sempra, was unequivocal in his description of AB-265.

'Bad Bill'

"It's a bad bill. It puts on layaway as much as a billion dollars in costs for payment in 2004, and it doesn't address the real problem, which is in the wholesale electricity market. That's where the high prices are being generated , excuse the pun," he said.

Kline stressed under deregulation, SDG & E; no longer generates electricity. Instead, it must purchase electricity on California's Power Exchange, and then pass the cost on to the consumer without markup, he said.

Now, with AB-265 through the Legislature, the bill requires SDG & E; to bill customers a low price for electricity , regardless of the high cost the utility faces when it purchases that power, Kline said.

"What the Legislature's done is akin to telling a shopkeeper that he has to buy a loaf of bread for $2 and sell it to his customers for 60 cents," he said.

Worse still, the language in the bill is vague when it comes to how to recover costs, he said.

"Really, what the legislation is getting politicians is a path to the next election," Kline said.

The intention of the bill is good, but the only real relief can come at the federal level, Kline said. The wholesale electricity market is overseen by the FERC, not by state regulators, he said.

Kline stressed the FERC is already scheduled to conduct an investigation into the wholesale market. That investigation will confirm what SDG & E; has been saying for quite some time , the wholesale market isn't working, and this is the cause of high energy prices for SDG & E; customers, he said.

"We believe the wholesale market is broken, and there needs to be some fundamental repairs in the way the market structure is designed," Kline said. "We are certainly advocating fundamental reform in the market."

Michael Shames, executive director of the Utility Consumers' Action network, was largely satisfied with AB-265. The crisis for the most part was over, he said.

"I am hopeful that San Diego and south Orange County's immediate electric rate crisis has been relieved sufficiently that we can all return to somewhat normal lives," he said.

Shames called AB-265 and its companion bills "not perfect legislation, but essential legislation."

"The legislation was a compromise," he said. "San Diegans will still be paying more than they should for energy. And the really tough issues were punted back to the Public Utilities Commission."

Shames noted the bill provides retroactive relief from double-digit energy prices, so San Diegans will see credits on their October bills for the high energy rates they faced this summer.

The bill also protects against rate shocks through December 2002. The CPUC has the option of extending this to December 2003, he said.

As an urgency measure, it takes effect the moment the governor signs it, he said.

Shames noted customers will still be paying about 20 percent more for electricity than last year, when deregulation proponents promised that ratepayers will be paying 20 percent less.Also, the legislation was hastily drafted and some of the language is ambiguous. Shames figures there will be plenty of fighting over the next few years over interpretations of the legislation.

"The Legislature will spend much of the next two years grappling with deregulation, and it is likely that AB-265 will be modified in the coming years, so it is difficult to look at this bill as anything more than short-term relief needed by an economy that is being battered and a public that is being traumatized," he said.

Shames remains wary, meanwhile, of some of the companion bills to AB-265. AB-1165 will provide $150 million from the state's general fund to cover any shortfalls consumers might have to pay in the future once the rate cap is lifted.

This bill was a compromise to Assembly Republicans who insisted that general fund monies be used to cover shortfalls, and Shames is curious that SDG & E; was the one pushing heavily for its passage.

"UCAN sees this fund as a bail-out of SDG & E;, the generators and the regulators who botched deregulation. It is bad policy," he said.

Shames had no opinion on SB-970, which would ease provisions to site new power plants. He had not seen a final version of it as of press time.