Jump in Power Bills May Lead DWP to Unplug Deregulation.

For much of the past three years, it was pretty much a given that L.A. city officials would deregulate the Los Angeles Department of Water & Power by the year 2003 or risk losing major commercial customers to competitors willing to offer cheaper electric power rates.

But now, as those officials eye the doubling and tripling of electric power bills in the San Diego area as that region has entered a fully deregulated market, L.A. city officials are no longer convinced that deregulation is necessary or even desirable.

"Deregulation is not as good as we thought it was going to be," said L.A. City Councilwoman Ruth Galanter, who chairs the council's energy and resources committee that oversees the DWP. "We may not want to go to the open market; certainly we should stay out until all the kinks are worked out of the current deregulation program."

Under the deregulation law passed by the state Legislature four years ago, municipal utilities like the DWP were allowed to choose whether they would join the open marketplace or remain regulated monopolies.

The ultimate decision about whether or not to deregulate a municipal utility -- which must be made by early 2003 -- is actually up to the city councils, since they have the ultimate jurisdiction over the utilities.

The state's three investor-owned utilities -- Southern California Edison, San Diego Gas & Electric, and Pacific Gas & Electric -- were given no such choice: They must open up to competition no later than March 2002.

In return, the investor-owned utilities were allowed to speed up collection of payments from their customers to cover billions of dollars in debts left over from costly investments in alternative power generating facilities. To help offset this, the state froze power rates for residential and small business customers of these utilities until the debts were paid off or until March 2002, whichever came first.

San Diego Gas & Electric, the smallest of the three utilities with the least amount of debt, finished paying off its debts this past spring. As a result, the rate freeze was lifted and the utility was required to buy its power on the open market. But electricity is now in short supply, due to a dearth of new power plants and skyrocketing demand for power driven by the booming economy and the high use of computers. So SDG&E customers in San Diego County and southern Orange County have seen their power bills surge, doubling on average and in many cases tripling or quadrupling.

L.A. DWP General Manager S. David Freeman said the market is definitely not working as intended.

"Everybody thought prices would go down with deregulation, because there was supposed to be more competition," said Freeman. "But that's not the case. This is turning into a summer of despair for those people in San Diego."

Freeman, who has been publicly cautious for the last year or so about whether his agency should be deregulated, said that the situation in San Diego only reinforces a go-slow approach to actual deregulation.

"We're not going to rely on a market that hasn't proven itself yet," Freeman said. "That doesn't mean we shouldn't be prepared for deregulation if the market does settle out."