Hoping to cut energy costs, dozens of major companies based or operating in Los Angeles are pushing state regulators to once again allow them to choose their electricity providers a key component of deregulation shelved after the 2001 power crisis.
Real estate companies, supermarkets, restaurants, manufacturers such as Boeing Co. and even college campuses are among nearly 200 entities that have petitioned the California Public Utilities Commission to re-open so-called "direct access."
The term describes the right of electricity customers to leave their electric utility and choose an independent electricity provider. Late last month, the PUC voted to study the issue, and if deemed feasible, craft regulations within 18 months to reinstate the process.
The move has been welcomed by major retailers and manufacturers that say restoring competition in the electricity market would lower their rates.
"We would anticipate substantial savings on our energy bill if direct access were reinstated," said Kevin Davis, chief executive of the Carson-based Bristol Farms grocery chain and a board member of the California Grocers Association, another direct access supporter.
It also would give big electricity users more flexibility to buy power from renewable sources such as windmill operators something they may need to do under the state's landmark 2006 law requiring reductions in greenhouse gas emissions by the private and public sectors. (Regulations implementing that law have yet to be crafted.)
However, the move would only represent a partial step toward deregulation of the energy market. Another major component, a power exchange where power is bought and sold on an hourly and daily basis, would be difficult to restore. The state's exchange went bankrupt in late 2001, and much of the power now used in the state is provided via utilities under long-term contract with independent power providers.
Meanwhile, consumer groups along with the state's three investor-owned utilities PG & E; Corp., Sempra Energy's San Diego Gas & Electric and Rosemead-based Edison International are wary of the direct access proposal.
Consumer groups say that competition by big customers for cheaper electrical rates would result in higher bills for residents and small businesses even if they also are allowed to pursue direct access, something unclear at this point. The groups say power producers would give more favorable rates to larger customers.
In addition, the utilities worry that they could be harmed by a churn of customers seeking the cheapest rates as they make plans to handle anticipated increases in demand.
"It takes us years to build new power plants. If we build those plants and then many customers decide to leave under direct access, then the remaining ratepayers are left with higher costs," said Akbar Jazayeri, vice president of revenue and tariffs for Edison.
Jazayeri added that Edison is not opposed to direct access in concept, just that any plan must have safeguards to ensure remaining ratepayers are not stuck with the tab for those leaving their network.
Direct access was one of the cornerstones of the state's deregulation law in the late 1990s. But that whole plan imploded during the energy crisis of 2000-01 as wholesale electricity rates skyrocketed while end retail rates were capped. It was subsequently found that power producers, such as Enron Corp., were manipulating wholesale power prices traded on the exchange.
The state's three investor-owned utilities were virtually bankrupted, rolling blackouts ensued and the state was forced to step in and arrange long-term contracts at highly inflated prices. Over the next several months, thousands of businesses and millions of residential customers were hit with higher electricity rates.
In late 2001, state legislators suspended direct access, with the promise that it would be restored once the market stabilized. Companies already in direct access contracts with independent energy providers could remain in those contracts, but they could not add electricity load to those contracts. And no additional companies could sign up.
When Gov. Arnold Schwarzenegger came into office following the recall of Gray Davis, he promised to restore direct access for bigger power users. But it wasn't until the petitions were received last December from businesses and a coalition of energy providers known as the Alliance for Cooperative Energy Solutions that the PUC began to look into the matter.
Under the proposal championed by commission president and former Edison executive Michael Peevey, the PUC will conduct a review of the issue to determine whether re-opening direct access is feasible and whether legislation would be required to overturn the six-year-old suspension of the program.
After that, the commission would craft rules to determine the shape of the direct access market, including any fees that customers would have to pay to leave the utilities' power networks. This process could take about 18 months, meaning that competition would not take place until 2009 at the earliest.
That date could not come soon enough for many companies grappling with California's high electricity costs, which are often two or even three times the cost in neighboring states. And it's not just the unit cost per kilowatt hour. Major companies with facilities throughout the state must deal with electric bills from several utilities.
"You can't get the best price for your electricity use under the current system because you are not able to leverage the whole load to get a bulk discount," said Bill Dombrowski, president of the California Retailers Association. "Also, it makes it very hard to track overall energy usage for retailers with multiple stores. It becomes a real hodge-podge. My members really would like to see this thing streamlined."
One major problem for retailers who stuck with direct access is that new stores that have opened in the intervening years have mostly been required to purchase their electricity from local utilities. That's the case for Pleasanton-based Safeway Inc., which has opened 60 stores in the state in the last six years, including several Vons stores in the L.A. area.
At Los Angeles-based Macerich Co., which owns and operates 20 shopping malls in California including the Westside Pavilion and Santa Monica Place direct access is also about being able to move quickly as market conditions dictate.
"The way the power market is these days, you need the ability to arrange longer-term yet flexible contracts, so that when the price goes down, you can lock that in instead of relying just on the monopoly utility," said Jeff Bedell, vice president of operations for Macerich. "That's how we operate in other states."
Furthermore, Bedell said, direct access would allow the company to buy electricity from power providers who derive a greater share of their energy from renewable sources than state's three major utilities all part of a company plan to make itself more green.
The drive for green power is also the main motivating factor behind Safeway's decision to support the move towards reinstating direct access. A company representative specifically cited the state's greenhouse gas emissions law as an impetus.
"We want to take the savings from our conventional power and apply that to the purchase of renewable power so we can meet the targets set forth in the (state's) greenhouse gas reduction law," said Safeway spokesman Brian Dowling.
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