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Reforming California: Reflections on the Morning After

Fortnightly Magazine - December 1998

consumers have come to expect.

By August, more than 93,000 Californians had signed on to direct access with energy service providers. More than 13 billion kilowatt-hours of electricity was moving each month under bilateral agreements. Yes, those same dreaded bilateral contracts that so many decried have won acceptance as legitimate economic currency.

At last count, direct access consumers represented more than 8.5 percent of the residential load. Over 20 percent of the power consumed by California's industrial consumers was provided through the direct access market, and more than 8 percent of the large commercial load. All of this has happened in the short months that the market has been open. The 30 days ended Aug. 31 saw a 16.5-percent increase in the number of consumers and a 5-percent increase in the share of the load served by direct access providers.

Despite these achievements, it seems in vogue to trash California's move to competition. Could we have done better? Yes, of course. Are there items that still need attention? Sure there are, because that's the inherent nature of change and economic progress. Did we devise the perfect answer to every problem? No. Only a fool or unfit leadership would have entertained such a wasteful strategy.

Above all, we moved forward. We blazed a trail that others dared not walk, but now seek to follow, even while scrutinizing the footprints we left behind.

Those who criticize the California model perhaps should reflect on their role as protagonists for a system that has contributed to what could be characterized as the economic violation of our citizenry. Let them bask in the glory of central planning that led to uneconomic QF contracts and investments that sapped our economic and human resources for years and saddled us with these stranded costs.

People forget that in California, the winter reliability problems in 1994 and the August blackouts in 1996 occurred under the traditional regulated scheme. People forget that in the Midwest, where competitive markets have yet to take hold, consumers faced supply problems this past summer. What we saw in the Midwest this summer was the death throes of the traditional utility monopoly.

Setting New Goals

What about the future? In my judgement, seven goals remain to achieve a true renaissance in California's electric sector.

1. End Municipal Exemptions. In California, vast numbers of consumers are denied choice because competition stops at the boundaries of municipal utilities and irrigation districts. For California's electric market to grow, these protected enclaves must be purposely breached. We must have a marketplace that allows statewide marketing and rollout of services. Thousands of California businesses in the service territories of investor-owned utilities already have opted for advantages of direct access. It doesn't stand to reason to deny such choices to thousands of businesses, and millions of consumers, in Los Angeles, Palo Alto or Sacramento.

2. Avoid PX Preferences. Regulators and policy makers should not offer special treatment to the power exchange. Though innovative, the PX is only one of many schedule coordinators. Policies that favor the PX or subsidize it will harm those