Major businesses throughout California,already nervous about pending electricity rate hikes,are up in arms over state legislation that could end their ability to sign contracts with outside electricity providers and leave them stuck paying high electricity prices locked in by the state.
The lock-in provision, buried in the massive $10 billion bond authorization signed into law in February, would allow the state Public Utilities Commission to ban such third-party contracts at its own discretion, effectively ending the state’s experiment with competition in the retail electricity market.
Business groups,including the California Chamber of Commerce, the California Manufacturers & Technology Association and the California Retailers Association,have banded together and are pushing for legislation that would ensure their members have the right to enter into third-party contracts with electricity providers, a process known as “direct access.”
But, their effort recently was dealt a setback. A bill that would allow for direct access,SBX1 27 by state Sen. Debra Bowen, D-Marina del Rey,did clear a key committee. But that bill would not institute two changes that business leaders consider crucial: taking away the PUC’s discretion to end direct access, and reducing what could be prohibitively high “exit fees” that businesses must pay the state if they opt to leave the power grid and sign contracts with third parties.
“This is of extreme concern to our members,” said Jack Stewart, president of the California Manufacturers & Technology Association. “With the forthcoming rate increases, the state will be locking in high prices for our members for the next 10 years. If manufacturers have no choice but to shell out these huge payments for power year after year, they will be forced to shut their doors, move out of state or cut back their operations.”
Legislators are insisting that businesses that leave the grid pay the “exit fee” to reimburse the state for its power costs.
“Right now, business power users are shielded from market rates because the state is paying millions of dollars each day for power on the wholesale market and only passing along a fraction of that cost to ratepayers,” said Lawrence Lingbloom, a staff consultant to Bowen. “These same business power users want the right to leave the state grid when it suits them, when market prices are lower, without fully compensating the state for its subsidy. That’s just not fair. Businesses cannot be allowed to get totally off the hook and leave other ratepayers to pick up the tab.”
But business leaders argue that, if they can find lower-priced third party contracts, they should be allowed to sign those contracts without paying a fee so exorbitant that it essentially wipes out all the potential savings.
“What the Legislature is doing is patently unfair. It is asking businesses to pay for contracts the state enters into, regardless of our ability to negotiate better contracts for ourselves,” said Robert Bahl, Western region vice president of engineering for Marriott International, which manages or franchises 157 hotels statewide.
Bahl and other business leaders say they are not opposed to paying an exit fee, so long as that fee is “reasonable.”
At a recent hearing, the Senate Energy, Utilities And Communications Committee that Bowen chairs did make a concession: It agreed to allow the exit fee to be paid in monthly installments along with power bills, instead of requiring a single, up-front charge. But the committee held firm on the idea that the exit fee must cover the entire difference between what the state was paying for power on the wholesale market and the price it was charging to retail customers.
Following what is expected to be an intense round of negotiations, the Bowen bill is slated to go before the Senate Appropriation Committee within the next few weeks. n
Fine is a staff reporter at the Los Angeles Business Journal.
