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NOVEMBER 29, 2000, WEDNESDAY, FINAL EDITION

SECTION: NEWS; Pg. A1

LENGTH: 985 words

HEADLINE: Electricity Regulation Proposed for State Ballot;

Consumer group wants agency to run power grid

SOURCE: Chronicle Staff Writers

BYLINE: Lynda Gledhill, Christian Berthelsen

DATELINE: Sacramento

BODY:
Raising the stakes in the debate over skyrocketing energy prices, a leading consumer advocate proposed a ballot initiative yesterday to scrap California's deregulated electricity market and transform it into a state-run system.

The plan by Harvey Rosenfield -- author of a 1988 landmark ballot measure to cut insurance rates -- comes just three days before Gov. Gray Davis is expected to release part of his own plan to reform the system.

Rosenfield, head of the Foundation for Taxpayers and Consumer Rights and a veteran of many hotly contested ballot propositions, said his organization intends to take the measure to voters in 2002 if lawmakers do not act first.

"Harvey is California's initiative king," said Michael Shames, executive director of the Utility Consumers' Action Network in San Diego. "When he proposes an initiative, it has to be taken seriously." The initiative would dismantle the existing energy system and establish a new state agency to oversee the state's power grid. That agency would have the authority to build, own and operate its own power plants as well as transmission and distribution systems.

"Deregulation of electricity was a disastrous mistake," Rosenfield said at a Capitol press conference. "It must be fixed, . . . and fixed means that we end the foolish experiment in entrusting the profit-driven, private oligopolistic energy companies with our survival."

For their part, the state's utilities blasted the plan as an expensive and misguided attempt that would create a vast new state bureaucracy.

Rosenfield said the proposal will change depending on what the governor and the Legislature do in the coming months, but the move could be the opening salvo in a ratepayer revolt.

California's 1996 deregulation law had forced investor-owned utilities to give up their hold on generating and transmission facilities and buy power in the open market.

The change was designed to increase competition and produce lower electricity rates for consumers. As part of the plan, the utilities would freeze rates until they completed the sale of their assets.

Deregulation, though, was put to a severe test last summer as energy supplies could not keep up with demand in San Diego, the first city in the state to come under deregulation. As a result, ratepayers in San Diego saw their bills tripled as the wholesale electricity market was exposed to daily price swings.

The crisis has sent state officials and utilities scrambling for a solution. Just last week, Pacific Gas and Electric Co. proposed a five-year "rate stabilization plan" that would allow the utility to pass along to customers more than $3 billion in unforeseen power costs incurred during the summer.

Rosenfield's initiative, however, would prohibit bailing out utilities that incurred higher energy costs this summer. It also calls for refunds to San Diego customers and a windfall profits tax on energy companies.

"We cannot have a free-market system determine how much people pay for electricity,' Rosenfield said.

Even if the Legislature and governor approve some kind of electricity relief proposal, Rosenfield said, unless it includes a public system, he will go ahead with his ballot measure. He estimated it would cost $7 million to put on the ballot.

Utilities criticized the plan, saying it would do little to develop energy supplies.

Ron Low, a spokesman for PG&E, said the company agreed with the proposals for customer refunds and additional oversight of out-of-state generators.

But the company is opposed to what Low termed "a huge new bureaucracy" overseeing electricity and said PG&E still intends to recover losses from ratepayers.

Southern California Edison called the ballot initiative a "misguided proposal" that would be too costly, unpractical and unachievable. It said it would threaten the electrical systems stability.

Davis' spokesman did not have a comment on the specifics of Rosenfield's proposal.

"As the proponent of the initiative pointed out, Gov. Davis inherited this problem and he's working hard with all the parties to fashion an appropriate solution,' said spokesman Steve Maviglio.

Davis' proposal is expected to come in the form of a letter to the Federal Energy Regulatory Commission, or FERC, which earlier this month said California's electricity rates are "unjust and unreasonable" and that the state's wholesale power market is "seriously flawed."

Testifying before FERC, Davis said he found it "incomprehensible" that the commission did not order refunds for consumers. He is likely to continue to urge them to do so, despite FERC's decision that it does not have that authority.

Although the Democratic governor had not narrowed down his options as of yesterday, sources said one of the things not under consideration is prohibiting the utilities from recouping their billions in losses from ratepayers.

One of the main proposals expected is rebuilding the boards that currently oversee the state electricity market -- the Independent System Operator and the California Power Exchange -- to remove members with a vested interest in the financial performance of energy companies.

Eleven members of the 25-member board of the Independent System Operator, and 13 of 28 members on the board of power exchange, come from investor-owned or municipal utilities, energy trading companies and other energy concerns.

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POWER PLAYHarvey Rosenfield's proposed ballot measure would create a new energy agency that would:

-- Oversee the state's power grid.

-- Build, own and operate power plants as well as transmission and distribution systems.

-- Enforce refunds to consumers.

-- Exercise control over wholesale prices.E-mail Lynda Gledhill at lgledhill@sfchronicle.com. / E-mail Christian Berthelsen at cberthelsen@sfchronicle.com.

GRAPHIC: PHOTO

LOAD-DATE: March 20, 2001