Direct access article ,
 We're still getting traction from Skilling's remarks last week!

State energy crisis may imperil future of deregulation, consumer choice
By DON THOMPSON
Associated Press Writer

06/27/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

SACRAMENTO (AP) - California's energy crisis may claim a substantial victim: 
deregulation itself. 
"Never again will we embrace a free market - it's too expensive," Gov. Gray 
Davis' chief energy adviser, S. David Freeman, predicted Wednesday.
"The marketplace is blind to the need for cleaner air, it is blind to the 
needs of consumers in a shortage, and it produces a shortage with its 
volatility," the former head of the Los Angeles and Sacramento municipal 
power agencies told a Senate committee plotting California's energy future. 
The state's flawed 1996 law freed wholesale electricity rates while capping 
retail power prices, leaving the state's three investor-owned utilities 
trapped in between. 
Now the state has signed $43 billion worth of long-term energy contracts, and 
created a power authority that could build its own power plants. 
Its Public Utilities Commission stands ready to bar businesses from freely 
swapping power providers - the incentive that prompted deregulation in the 
first place. 
Davis wants lawmakers to approve buying the electricity transmission lines 
from two of the three cash-strapped utilities, and wants to buy the lines of 
the state's largest utility, Pacific Gas and Electric, out of bankruptcy 
court. 
Consumer groups say the state should buy the utilities' hydroelectric 
generation and other assets as well, as part of a return to regulation and a 
shift to publicly owned power supplies. 
"Look what deregulation and handing our electricity supply over to a bunch of 
private companies has done for us - 50 percent (rate) increases and $20 
billion in surcharges. Thank you very much, but no thank you," Harvey 
Rosenfield of the Foundation for Taxpayer and Consumer Rights said last week. 
He argued the state should buy all three utilities at their current 
"fire-sale prices" - "We're talking about picking them up for a 
dime-for-a-dollar when they're totally out of cash." 
Enron Corp. President and CEO Jeffrey Skilling is among those urging the 
state to do the opposite and create a truly open market. Public power only 
drives up costs and lowers accountability, he said. 
"If you had an open competitive marketplace and not put restrictions on that 
marketplace, I guarantee you the price of power in California will be 
significantly lower," he said in a San Francisco speech last week entitled, 
"The arrogance of regulation." 
"California needs to get deregulation right and the rest of the country needs 
to get deregulation right," Skilling said, shortly after he was hit by a pie 
thrown by an irate electricity consumer. 
That means giving consumers more immediate price incentives, other free 
marketers told the Senate Energy Committee Wednesday. 
Tiered electricity rates would reward consumers who confine their electricity 
use to lower, cheaper "tiers" of energy consumption. 
Real-time electricity meters would let consumers see the price they are 
paying at any given time of day or night, encouraging them to, say, run their 
clothes dryer at 3 a.m. when power would be cheaper. 
Business' demand for choice drove the deregulation movement, when industries 
sought the ability to choose among energy wholesalers or generators rather 
than being locked into buying their money through a local utility. 
But PUC President Loretta Lynch predicted the commission will block that 
choice Tuesday, for fear departing customers will leave residential and other 
small consumers to pay a larger share of the $8.2 billion the state has 
authorized for power buys. 
The move was panned by generators and business groups as a step backward. 
Southern California Edison Vice President Bob Foster predicted the state will 
end up regulating all three legs of its power grid: generation, transmission 
and distribution. Regulation is needed to smooth out the boom-and-bust 
business cycle that California has seen so graphically in the last year, he 
said. 
Freeman predicted the state will likely wind up with some sort of "hybrid" of 
government regulation that will rein in the excesses of a free market. 
"It's impossible to say at the moment whether the (investor-owned) utilities 
will revive," he warned. If they do, he said their corporate boards may opt 
to chase the higher profits of the open market while shedding their 
transmission and distribution systems to state control. 
Yet Freeman and California Energy Commission Chairman Bill Keese predicted 
residential and business consumers may soon see the sort of freedom of choice 
they now could only dream about, once fuel cells, photovoltaic generation and 
micro-turbines become commonplace. 
"The future perhaps belongs to a whole new set of competitors," Freeman said. 
"These central station power generators are not going to have it all to 
themselves."

AP Photos SC108-109. 

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.
jeff.dasovich@enron.com, susan.mara@enron.com