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State energy contracts must be paid off by users in system By Ed Mendel SAN DIEGO UNION-TRIBUNE STAFF WRITER July 12, 2001 SACRAMENTO -- California businesses are being hit by big electricity rate increases, some as high as 100 percent, and they would like to be able to shop around for cheaper power. But state regulators are poised to ban customer choice, or "direct access" as it has come to be called, because they want to make sure that enough customers remain with utilities to pay for state power purchases. After a month of closed-door talks, the revelation that the state has signed $43 billion worth of long-term power contracts at above-market prices helped scuttle an attempt to work out a compromise in the Assembly. * <http://www.signonsandiego.com/news/reports/power/20010712-9999_7m12correct. html< For the record: Power story correction * <http://www.signonsandiego.com/news/reports/power/20010712-9999_1n12enron.ht ml< Senate panel, energy firm fighting tough <http://www.signonsandiego.com/images/trans_1x1.gif< "If the intent of the big customers is to leave the small customers paying for those contracts, we are going to fight like hell," said Lenny Goldberg, a lobbyist for The Utility Reform Network. Jack Stewart, president of the California Manufacturers and Technology Association, said large business users were offering to pay off the back debt of Southern California Edison, estimated at $3.5 billion, in exchange for direct access. "I thought we were making a lot of progress until the information on the contracts came out," Stewart said. "We really don't have a way of dealing with those contracts." Now Stewart is suggesting that direct access be slowly phased in over a period of years and that the long-term power contracts be renegotiated, perhaps with some being switched from the state to big-business users. The manufacturers association and the California Chamber of Commerce helped organize a business coalition, Californians for Energy Action, that wants a cheaper alternative to power purchased for utility customers by the state. "Many large and small California businesses have seen their electric bills double," says a newspaper ad being run by the coalition this week. "These cost increases are a burden that will cause consumer prices to increase, some businesses to fail and jobs to be lost." A rate increase approved by the state Public Utilities Commission for PG&E and Edison customers in May fell heaviest on business users. The PUC said that the average residential increase was about 50 percent, while the average business increase was about 75 percent. Legislation that authorized the state to begin buying power in January for the utilities, who were crippled by a failed deregulation plan, bars rate increases for residential customers who use up to 130 percent of the baseline, the minimal amount deemed necessary for a household. Senate President Pro Tempore John Burton, D-San Francisco, and other legislators have argued that large businesses should bear most of the burden of the failed deregulation plan because it was business, not residential consumers, who pushed for deregulation. Alan Zaremberg, president of the California Chamber of Commerce, said that forcing businesses to bear a "disproportionate" rate increase will cost everyone through higher prices for goods and services and possibly a loss of jobs. "If government didn't allow implementation of deregulation in the right manner," Zaremberg said, "then we all have to find a solution. We are all in this together, and that's residential and business alike." The legislation that authorized the state to buy power also directed the PUC to ban direct access power purchases, if the loss of rate revenue from the departing customers would harm the ability to pay off a power bond. The state plans to issue a bond of up to $13.4 billion in September or October to repay the taxpayer-supported state general fund for power purchases. The bond would be paid off by ratepayers over 15 years. Last week, the Senate rejected a bill by Sen. Debra Bowen, D-Marina del Rey, on a 19-12 vote that would have allowed businesses to shop for power if they paid an "exit fee" to protect the bond payments. Business groups said the fee was too large and would not result in lower power costs. "I cannot carry a direct-access bill that makes it harder to sell the bonds or that shifts costs from large users, who leave for cheaper power, to smaller users and residential ratepayers," Bowen said. Burton and Bowen have both criticized Gov. Gray Davis' plan to keep Southern California Edison from joining Pacific Gas and Electric in bankruptcy. They say the plan, which includes the state purchase of the Edison transmission system, is too generous to Edison. Both Burton and Bowen have suggested that an Edison bankruptcy may not be a calamity. But in the Assembly, Speaker Robert Hertzberg, D-Van Nuys, launched a drive for an alternative Edison rescue plan that was based on gaining business support by offering direct access. Hertzberg asked a former Democratic assemblyman, Phil Isenberg of Sacramento, to try to work out an agreement among the various special interest groups: business, labor, consumers and generators. The basic plan considered by the Isenberg group would have left "core" customers -- residences and small businesses -- in a regulated system receiving power at stable prices from the generators and contracts retained by the utilities. Businesses and other large users, the "non-core" customers, would be free to shop around for low-cost power by 2003 if they agreed to help pay off the Edison debt. The Edison rate increase for large users would be limited to 50 percent. The PUC would create a "balancing account" to track costs, issuing a refund if too much was collected or raising rates if revenue fell short. Business and generator groups told Hertzberg last week that they reached agreement on a general framework, with the exception of the state purchase of the Edison transmission system and some other issues. But the consumer and labor representatives opposed the framework. Mike Florio of The Utility Reform Network said in a dissenting statement that an across-the-board allocation of state power costs would be "clearly unfair" and cause residential users to subsidize direct-access customers. Hertzberg said he is considering some of the ideas in the framework presented by the Isenberg group and may make a proposal in a week or two. "We are looking at all the possibilities," Hertzberg said. "We are trying to do some form of direct access within the current contract structure."
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