DEREG/fine/8″/mike1st/mark2nd

No. 35

State Deregulates Electricity Industry

On March 31, the nation’s largest attempt at electricity deregulation got underway in California. Over the next several years, deregulation is expected to completely transform the way businesses and residents pay for and use electricity.

But the beginning was far from smooth. First, computer problems pushed back the start date initially set for last Jan. 1. Then the linchpin of the deal a surcharge on electricity bills to cover the costs of bad investments by the state’s three investor-owned utilities came under attack on two fronts.

First, major outside power providers, like Enron Corp. and PacifiCorp, pulled back from the market, citing margins that would be too low. Then came an attempt by consumer activist Harvey Rosenfield to repeal the surcharge and impose a mandatory 20 percent rate cut, which would have effectively halted deregulation. The initiative was defeated only after utilities and the state’s major businesses mounted a $40 million campaign against it, making it one of the costliest initiative battles in state history.

With the initiative now out of the way, deregulation is proceeding, albeit slowly. Several thousand businesses mostly major power users have switched providers. But that represents only a small portion of the 800,000 businesses and millions of households in California. The real competition is expected to begin in March 2002, once the surcharge expires and new players can reap higher margins.

By that time, the state’s major municipal electricity providers including the L.A. Department of Water and Power are expected to join the fray. The DWP already has been positioning itself, having cut 2,000 jobs during the past year and secured language in the proposed city charter that would allow top staff members to sign contracts without approval from the DWP Commission.

Howard Fine