Testimony Before Federal Regulatory Commission

September 12, 2000

Mr. Chairman and members of the Commission, on behalf of the County Board of Supervisors, I would like to thank you for taking the time to travel to San Diego today to hear first-hand of the impact that this summer's skyrocketing electric rates are having on San Diego residents and businesses.

San Diego County is in a "State of Emergency" and on the brink of human and economic disaster!

Over the last three months, electricity prices have jumped from 3.2 cents per kilowatt-hour to over twenty-one cents, doubling and tripling the amount paid for electricity from just a few weeks ago with no end in sight! Many residents and businesses simply can't afford this exorbitant rate increase that has been thrust upon our region virtually without warning.

The increase has placed an incredible burden on San Diego residents - many who are elderly and on fixed incomes. Several local residents, such as the 100,000 mostly seniors living in mobile home parks, have no choice but to pay their full bill or face eviction. Many of these people are having to decide between buying food or medicine or operating life saving medical devices or paying their electric bill.

The San Diego region is a $100 billion economy ranking 37th in the world! These skyrocketing rates threaten to cripple our vibrant economy. Businesses have begun to cut back their hours, lay off workers, and add surcharges to their prices. The ripple effect has only begun.

As the first region in the nation to experience true electricity deregulation, San Diegans are the guinea pigs in this bold new experiment. So far, the experiment has failed and we need a course correction. People are suffering! Businesses are hurting! San Diego is in crisis!

The people and businesses in San Diego are innocent victims of a deregulated system in a dysfunctional market. We did not cause the problem and we should not have to pay the price!

Deregulation has not worked in San Diego for several reasons including but not limited to; a lack of market competition, a CPUC that has failed to provide aggressive oversight and actions to protect consumers, a power exchange that is required to set market price based on the last highest bid, the lack of forward purchasing and the inability of an Energy Service Provider to be able to purchase electricity from any and all available sources.

Also, there is something seriously wrong with the current market and it seems that no one can satisfactorily explain why!

For example, in a recent report in the North County Times, generators have been able to hike their prices even during the off-peak middle of the night hours. This seems to indicate that electricity generators are manipulating the market to maximize their profits.

In an example given in the article, the California Power Exchange reported that utilities paid an average of $123 per megawatt hour for power on a recent Tuesday night between the hours of 11:00 p.m. and 6:00 a.m. when electricity is plentiful. On the same night last year, generators charged only $26 per megawatt hour. This represents an increase of 476% even though the total demand for megawatt hours on that particularly Tuesday was 8,000 less than the same night last year!

I'm hopeful that the information you receive today will help not only in addressing the problem in San Diego but also in preventing a similar situation from occurring throughout California and in other States across our nation that are moving towards deregulated electricity markets.

If this problem can't be solved for three million people in San Diego, what are the consequences for thirty million Californians and others throughout the Nation?

In response to this crisis, the County Board of Supervisors and several city councils, including the City of San Diego, declared a State of Emergency.

We asked our State Legislators, the Governor, and State regulators to take immediate action to provide consumers with immediate relief until permanent solutions are found to reduce and stabilize electricity rates in San Diego.

In response, legislators and regulators put in place a 6 1/2 cent rate cap for most San Diego customers. While this action is welcome, it is only a temporary, stopgap measure. In and of itself, this rate cap is simply an installment plan with a big balloon payment at the end of 2003!

We must begin immediately to assure that San Diego consumers are held harmless for the accumulated debt in the balancing account and the more daunting task of deciding what additional action must be taken to ensure that the energy market throughout California and markets throughout the nation offer consumers a reliable and reasonably priced electricity supply.

I'm certain that you will hear from the panelists today that there is a need to increase power supplies to drive down market prices. While this is very important, we know that additional power supplies are unlikely to come on-line anytime soon.

Meanwhile, debt resulting from the 6 1/2 cent rate cap will continue to grow each day. Under the legislation signed by the Governor, the debt is estimated to be as high as $800 million with interest. Unless investigations determine culpability and those who are to blame are forced to pay, the innocent people and businesses in San Diego will be forced to pay the big $800 million balloon payment! And, we cannot afford it!

I, therefore, ask you to use your power to impose lower caps on generators throughout the western region as soon as possible. This action would reduce or eliminate the huge accumulation of debt as a result of the difference between the 6 1/2 cent rate cap and the current, outrageous market rate for electricity. This action will give us some real, not artificial, temporary relief while we work on permanent solutions.

On August 17th, the Board of Supervisors hosted a conference, bringing together deregulation experts to provide recommendations as to what actions need to be taken to solve this current crisis. The Board is expected to adopt an action plan next month based on those recommendations and we will forward that information to the Governor, members of the State Legislature, members of Congress, State regulators and your Commission.

Again, thank you for being in San Diego today and I look forward to working with you to return San Diego electricity prices to a reasonable and fair level while protecting consumers throughout California and the nation from facing a similar crisis.