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ELECTRIC DEREGULATION: LESSONS FROM CALIFORNIA

Lynn Olman still has the best line.

"Electric deregulation ought to carry a warning label saying: _'Caution: This issue can cause extreme drowsiness,'" the Republican state lawmaker from Maumee said last year. "People care about one issue and that is, 'Is this going to save me money?' I believe the answer is yes."

But the news from California over the past month has started to shake some Ohioans from their slumber.

On Jan. 1 customer choice for electric power is set to begin in Ohio. What that means for Toledo-area consumers is that Toledo Edison will lose its monopoly over the generation of electric power. Customers will be able to shop around the state and nation for the cheapest power.

Edison and Ohio's other electric utilities will continue to hold monopolies over the transmission and distribution of power to their customers. Edison's parent company, FirstEnergy Corp., also has created an unregulated subsidiary to sell power.

From the Public Utilities Commission of Ohio to the Ohio Consumers' Counsel, state officials have resisted any predictions about how much consumers can save, either in the short or long term.

But what is happening in California shows that anyone who tries to predict free-market dynamics can be very wrong.

California deregulated its electric utility industry in 1996 and phased in the change from south to north.

San Diego consumers were the first to witness the end of electric utility regulation and the start of free-market competition.

With electric rates doubling and then quadrupling, California regulations and state officials are scrambling to reverse course. Last week, the state's public utilities commission voted to cap electric bills for some residential and business customers, according to the New York Times and the Los Angeles Times.

The decision came as power shortages triggered "rolling brownouts" in the San Francisco area.
Dave Rinebolt has done presentations around Ohio on customer choice for electric power.

Mr. Rinebolt, executive director of a Findlay-based nonprofit group, Ohio Partners for Affordable Energy, said citizens are aware of press accounts of what is going on in California.

"They're asking, 'Can it happen here?'" he said.

But Mr. Rinebolt said he doesn't think so.

A major reason is that in California, demand has exceeded supply. A major reason is that stringent regulations have prevented the construction of any major new power plants over the past decade.

As California's economy continues to boom and temperatures have climbed this summer, out-of-state suppliers face four federal and state investigations into price gouging.

In Ohio, shortages of power during the summer of 1999 and customer choice have led to construction of several small, natural-gas-fired power plants.

Ohio policymakers also learned some lessons from California's deregulation law. They did not require Ohio utilities to sell off their generating plants. And Ohio's legislature inserted language into Ohio's law to enable local governments to shop around for the cheapest power on behalf of their residents. Most Lucas County voters will consider the issue on Nov. 7.

Paul Fenn, head of a group called American Local Power in Oakland, Calif., is pushing for the same concept in California.

Mr. Fenn said the notion, widely believed in 1996, that individual customers or factories would constitute a "market" has been discredited in California. "People now understand the need for large blocs of customers," he said.

But Mr. Fenn said Ohio also can learn some lessons from California.
Faced with price spikes in San Diego, California officials are trying to "re-regulate" the electric utility industry.

As part of deregulation, electric utilities in California were allowed to charge their customers about $30 billion for "stranded costs." Those are investments, such as nuclear power plants, and other debts that utility company officials say they cannot recover in a competitive open market.

At a recent California legislative committee meeting, Mr. Fenn said: "If the idea of competition in the electric utility industry is to be revoked, and if official or unofficial monopolies are to be re-established, then we must ask the deregulated and bailed-out wire companies, are you paying us back the $30 billion then?

"It's a funny question because obviously the answer is 'no.' Our former utilities don't have the money we gave them. It has gone into their new global investment portfolios," Mr. Fenn said.
Jim Drew is chief of The Blade's Columbus bureau.

All content © 2000 THE BLADE, TOLEDO, OHIO and may not be republished without permission.

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© Copyright 2008 State Representative Lynn Olman. All rights reserved.

 

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