Powerful New Idea for Electric Power? : State looks to deregulation of electric utilities

California may become a national trendsetter yet again. It may change the way you buy power for everything from a hair dryer to heavy factory equipment. The move has big implications for residents and businesses both here and elsewhere. But will California do the job right?

The state Public Utilities Commission is calling for deregulation of electric utilities, a proposal being watched closely by at least a dozen other states interested in deregulation.

Moving with surprising--some critics would say worrisome--speed after a yearlong study, the PUC issued proposals in April aimed at substituting market forces for the traditional state regulation of electric utilities.

Currently, most industrial and commercial electric customers have little choice but to purchase their power from the local utility, either a municipally owned system like Los Angeles’ Department of Water & Power or one of the big three investor-owned utilities in California--Pacific Gas and Electric Co., Southern California Edison Co. and San Diego Gas and Electric Co. Residential customers have no choice. The PUC proposal would free all customers of the private utilities to buy electricity from any source. Beginning two years from now, major commercial and industrial users would be able to buy from independent producers. Residential users would be able to do the same starting in 2002.

In theory, deregulation should reduce electricity rates (California’s are typically 50% above the national average) by putting new competitive market pressures on the big three private utilities. The ultimate goal is a more business-friendly and competitive California. But before it can go into effect this sweeping proposal will be subject to extensive review, criticism and revision. The PUC begins hearings this week, with the aim of deciding on deregulation by August.

That deadline is troubling. The PUC should take all the time it needs on this complex issue. After all, it is out to dismantle monopolies it has helped to protect since 1912. The PUC is an autonomous state unit under the state Constitution and has long had a reputation for siding with electric suppliers over consumers. That has raised concern over whether the PUC is even the right entity to oversee deregulation. Significantly, the U.S. Department of Energy is among the worried parties. It contends that the PUC is using a flawed legal strategy and that challenges to the PUC approach might keep any agreed-on plan tied up in the courts for years.

Indeed, judging by the first round of written comments, submitted to the PUC last Wednesday, there’s certainly no consensus now on how to go about deregulation--even though electricity producers, customers and environmentalists all say they want cost-cutting competition. The utilities differ on how to phase in a program. Consumers groups demand equitable treatment for residential customers. Environmentalists worry that wide-open competition would weaken the state’s long commitment to renewable energy sources.

The deregulation hearings merit close public attention. A new way to buy electricity represents a sweeping change for all of California’s homes and businesses. Doing it right could light the way for other states to follow. Doing it badly could hinder California’s economic revival.