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Industry News

California Says Open Access Unfair to Consumers

LCG, Sept. 4, 2001--The California Public Utilities Commission is likely to consider on Thursday a retroactive ban on open access -- the cornerstone of the state's electric deregulation that allows customers to shop around for the best deal on power.

When the state's electric restructuring law was passed in 1996, there were predictions that all classes of customers -- ranging from households to huge corporations -- would see savings if they were allowed to shop among power producers offering abundant supply at competitive prices.

The predictions didn't come to pass because instead of power being abundant, it turned out to be in short supply, and the laws of supply and demand sent prices soaring.

When California's three investor-owned utilities were forced to pay high wholesale prices for electricity and then sell it at frozen, low retail rates, they were forced into insolvency, and one of them, Pacific Gas & Electric Co., sought protection under Chapter 11 of the bankruptcy law in April.

When the utilities ran out of cash, the state stepped in to purchase power on their behalf. How the state is to be repaid is at the crux of the possible retroactive ban on open access. Payments by electric customers who have supply contracts with non-utility power sources are not available to state regulators.

As California moves forward with a plan to issue $12.5 billion in bonds to finance state power purchases, repayment of the bonds and payment of interest has become the major concern.

Early this year, the state legislature directed the CPUC to suspend direct access, but other measures in the legislature would have allowed it to continue under some conditions. The lawmakers were sending mixed signals to the regulators and to the industry.

Interest in shopping for power waned when electricity prices were at their peak, but this summer prices dropped at the result of unusually cool weather, the commissioning of several new power plants and the imposition of price controls by the Federal Energy Regulatory Commission. Power producers again began signing up direct access customers.

In the past two months, more than 6,000 businesses, including large industrial users and big retail chains, have signed direct access contracts with generators. The state sees this as endangering its bond issue.

State Treasurer Phil Angelides said the companies that signed the contracts want to escape paying their share of the billions spent by the state to ensure power supplies for California. "I think it's wrong and it's immoral," he said.

The CPUC says those contracts can be cancelled retroactively because the firms were on notice that open access was about to be cancelled, but a trade group, the Alliance for Retail Energy Markets, says that so many conflicting messages emanated from Sacramento it was impossible to use them in forward planning.

"Which one were we supposed to take seriously?" asked spokeswoman Tracy Fairchild.

Daniel Douglass, a lawyer for the Alliance for Retail Energy Markets, said an attempt by the state to cancel contracts retroactively would violate the constitutional law. He said energy marketers have purchased power to serve their customers under the contracts and would suffer losses if they were canceled.

But Angelides is worried that contesting the issue could throw a monkey wrench into the state's bond issue plans. He has said that a prolonged court fight could block the financing and, at the very least, would force to state to miss a deadline on its interim financing.

California has already borrowed $4.3 billion in the form of a "bridge loan" against proceeds from the bond sale. If the bond sale doesn't come off by the October 31 deadline, the interest on the bridge loan jumps from 4.14 percent to 7 percent.

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