Deregulation Sent San Diego’s Electric Bills Soaring; Will the Central Coast Soon Suffer the Same Fate?

BY JEN STEVENSON

When Denise Cahill moved to San Diego after graduating from Cal Poly, she expected a few changes–like warmer weather, more traffic, and bigger shopping malls.

What she didn't expect was for her July electricity bill to balloon, inflating to nearly double the amount of the month before, from around $70 to $140.

"I was so upset," she recalled. "I feel that I do a good job conserving energy and I just couldn't imagine how I had used so much as to cause such an enormous bill."

Cahill's electricity use didn't go up, her rates did–a recent byproduct of the deregulation of the electricity industry that’s horrifying residents of San Diego, the first region to see rates soar after several years of government-mandated rate freezes.

In the past several weeks, deregulation has become a buzzword throughout the state as all eyes turn to San Diego, where stunned San Diego Gas and Electric Co. customers have watched their electric bills more than double in the past month, going from an average of $49.50 to $100.30 a month.

The backlash has been considerable. The mayor of San Diego has pleaded for the government to step in and end the city's "nightmare," consumers are screaming foul, and local legislators are expressing dutiful outrage.

One senator, Steve Peace, D-El Cajon–who was instrumental in crafting AB 1890, the deregulation bill approved in 1996–called for SDG&E customers to practice "economic disobedience" by withholding payment of July electric bills until August, when rebates from past deregulation overcharges will be sent out.

As the state focuses on a stricken San Diego–the first "guinea pig" region to experience deregulation effects after the lifting of a transitional four-year rate freeze implemented by the government in 1996–concerned California residents elsewhere are becoming alarmed, wondering if and when their rates will skyrocket as well.

And because California is the first state in the nation to implement deregulation under the terms of a congressional bill passed in 1992, the entire nation is watching to see what the end result will be.

The SLO Connection

For now, Pacific Gas and Electric Co. officials are not speculating on what the effect of a rate unfreeze will be on their customer base, which includes San Luis Obispo County residents.

The energy behemoth's official line is that deregulation has been a boon to customers in the past and will continue to benefit consumers following the rate unfreeze.

"PG&E customers have enjoyed an electric rate freeze since 1993 and two reductions in rates since deregulation began in January 1998," said PG&E spokesman Bill Roake. "In 1998 alone, deregulation saved California residential and small commercial customers approximately $400 million."

Rates are tentatively scheduled to unfreeze in 2002, but according to Mindy Spatt, media advocacy director for the Utility Reform Network, a 27-year-old Bay Area consumer advocacy group, the unfreeze could come a lot sooner than expected.

"Consumers should not feel complacent about the next two years," Spatt warned. "We may find ourselves paying market rates a lot sooner than 2002."

SDG&E customers were the first to experience the effects of deregulation minus the rate freeze because the company was the first to divest itself of the majority of its electricity-generating holdings, as mandated by deregulation. As soon as PG&E and Southern California Edison follow suit, Spatt explained, the rate freeze will lift for their service areas.

"Unless something happens to change the way prices are [determined] now, we can expect exactly the same thing as what happened in San Diego," Spatt said.

However obscure the future of deregulation might be, Roake said that PG&E feels consumers will experience positive effects when the freeze ends.

"We are optimistic that as a new generation of plants come on line, and the increased competition they will bring, we will continue to see the benefits of deregulation for our customers," he said.

Diablo Canyon Nuclear Power Plant spokesman Jeff Lewis said the future of San Luis Obispo County's controversial power plant in the free market is uncertain.

"We don't have anything written in concrete, yet what we expect to happen next year is that Diablo Canyon would enter the grid market, and that means it would sell electricity into the grid, as opposed to the current situation where it has a fixed price regulated by the [California Public Utilities Commission]," he said.

Previously, county residents had voiced hopes that deregulation would prove unprofitable for Diablo Canyon, effectively putting it out of business.

But if deregulation continues to produce such high profits for energy generators, Diablo Canyon will become profitable like it never has been before, extending its life indefinitely, said Rochelle Becker, a member of SLO Mothers for Peace, which has long opposed the plant, and the Bay Area ratepayers advocacy group Toward Utility Rate Normalization, or TURN.

"If they can make profits like San Diego Gas and Electric, they're just going to love it," Becker said. "For the first time in its life Diablo will be profitable."

Causes and Effects

Becker, who has residences in both San Luis Obispo County and San Diego, has had a front-row seat on the deregulation unfreeze. Recently she attended a meeting that brought together representatives from all major deregulation players, including the California Energy Commission, Public Utilities Commission, Independent System Operators, legislators, local officials, and ratepayers.

"It was very poignant to watch people on fixed incomes stand up and say, ‘I can't use my refrigerator, much less any air conditioning, and I live in the inland part of San Diego,’" Becker said. "One elderly woman is now sharing a refrigerator with her neighbor and turning hers off. This is something unforeseen. People with fixed or low income cannot afford their electricity.

"If you're a senior and you don't have air conditioning you might be dead. This is life-threatening," she added.

It is a scene she fears could be repeated in the north when PG&E unfreezes its rates.

"What happened in San Diego was what would have happened anywhere in the state," said Becker. "And it's possible, but not likely, that some of the bugs will be worked out for PG&E next year. There are a lot of bugs in the system."

Several factors are being blamed for the current deregulation crisis in San Diego: a lack of foresight on the part of the government and utility providers, simple supply and demand, and profiteering by greedy electrical providers.

"I think that probably what everybody agreed to last week is that everyone except the ratepayers is to blame for what is happening to San Diego customers–Public Utilities Commission, oversight agencies, even some consumer groups that bought into AB 1890," Becker said. "There were so many holes in it and it was going through one way or another."

In large measure, lack of foresight is the culprit, Becker said.

"Nobody followed deregulation through to its logical–or illogical–end, to see what would happen when these freezes were up," she said.

Exacerbating the problem is a shortage of power in California in general, which has created a crucial imbalance between electrical supply and demand throughout the state and prevented newcomers to the electricity scene from gaining a foothold in the market.

"They didn't plan for this need, so there have been no new power plants built in California for God knows how long," Becker said.

With California facing an energy shortage because there aren’t enough power plants in the state, as temperatures soar in summer and electricity use goes up, worrisome results are looming.

The effects of this alarming lack of electricity have already been widely felt in the Bay Area. In mid-June, high temperatures pushed energy consumption to the brink of power companies' capabilities, causing "rolling blackouts"–intentional regional power shutoffs by PG&E that the company said are intended to relieve an overloaded power grid and prevent a catastrophic system-wide shutdown.

One major and growing power user that’s taxing the energy system is Silicon Valley, where the demand for electricity is increasing by nearly 5 percent a year–more than double the statewide average of 2 percent.

In response to electricity shortages, some high-tech companies like Oracle Corp. in Redwood Shores are shelling out millions to build their own electrical plants, a solution that isn't available to everyone.

In San Francisco, PG&E attempted to persuade the San Francisco Bay Conservation and Development Commission to allow the company to set up a floating power plant on an old tanker, using jet turbines, but the proposal was shot down when environmental groups cried foul, pointing out that such an inefficient, outdated means of energy production would foul the air on days when the air was already the most polluted.

Power plants are being constructed aross the state, and more are planned, but right now it’s a case of too little, too late, Becker said.

"What they should have done in 1997 is say, ‘Hey, we're going to have a need, so why aren't we planning for cost-effective power plants and good conservation programs?’" she said. "All the utilities knew this would happen and none of them built any new power plants, and the state of California didn't require they do that under deregulation."

The result of that lack of planning is driving energy prices through the roof, a situation that definitely benefits energy companies economically.

"You have utilities that are reaping unbelievable profits," Becker said. "I don't oppose profits for anyone–making money is part of business–but when you have government overseeing this to benefit the consumer and it's not benefiting the consumer, you aren't doing your job.

"The government never thought it through. It's almost like they put utility people on the board and said, ‘Hey, what would you like to happen in deregulation?’"

Rewiring the Plan

The San Diego crisis has forced a meeting of officials and government organizations that’s coming up in early August, but in the meantime many groups have voiced the need for a strong solution.

Already there are calls for repealing the deregulation bill, a solution that doesn't look likely, considering that as part of the deregulation deal large power companies such as PG&E and SDG&E had to sell off a good many of their substantial assets. They’d no doubt combat reregulation with expensive and time-consuming lawsuits.

One solution to the San Diego crisis that many are looking toward is an immediate refreezing of rates, Becker said.

"There are major reactions to this situation," she said. "UCAN [a consumer advocacy group] has put forth an emergency proposal to immediately refreeze rates until they could deal with the problem. That's probably the best solution–to put it back under a rate freeze and carefully look at what's going to happen in California and the nation as a result of deregulation."

And up north, where PG&E customers have yet to feel the possibly economically debilitating effects of deregulation, consumers can help themselves now by establishing sensible and efficient electricity usage habits, Becker said.

"There are certainly conservation efforts that should be put forward now," she said. "Communities should look closely at what's happening in San Diego, and we need to ask our communities not to use electricity unwisely." Æ

Jen Stevenson is a New Times staff writer.