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Plugging in Competition

Psst. Want a deal on electricity after midnight?

By Don Sevrens

February 2, 1997

Remember when Ma Bell lost her monopoly on Jan. 1, 1984? It was a sea change for long-distance telephony yet consumers didn't see significant differences for several years. And the ripple effects of competition are just now spreading to local telephone markets.

The sequel is coming to California on Jan. 1, 1998 as the electricity market is deregulated under a model actually crafted by San Diego Gas & Electric Co.

Local electric utilities will continue to be responsible for their own networks of poles and power lines, their own meter reading, and the bulk of their own billing. But on Jan. 1 the power produced by SDG&E, other firms and Johnny-come-lately start-ups will be sold to a power exchange — a high-voltage stock market.

Each day utilities and other large purchasers of electricity will bid for power to be delivered in half-hour increments during the next day. Do I hear 8 cents a kilowatt-hour for 3:30 to 4 p.m. tomorrow?

Utility customers will enjoy a 10 percent rate cut for electricity from day one. That's $4.30 a month for SDG&E's average residential customer, or $500 million in savings for SDG&E customers over 10 years, the utility calculates.

"Initially, residential customers will see very little change," explained Margot Kyd, vice president of marketing and customer service for SDG&E. "They will have lower rates and that's the key. They will have more choices, but they will probably unfold over time."

Large purchasers of electricity — particularly ones who want it during off-peak hours and have state-of-the-art metering equipment — Will be able to lower their costs the most. Just as making a phone call after 5 p.m. is cheaper, electrical rates are expected to vary by time of day.

It won't be cost-effective for the typical homeowner to yank out the old electric meter. But, in time, a variable-rate meter may become as much a new home status symbol as a built-in microwave or a programmable thermostat.

And as the marketplace adapts to deregulation, even residential users will be able to buy power from out-of-town firms or locally based competitors to SDG&E.

SDG&E has long been a proponent of deregulation, said Kyd. Indeed, SDG&E under the direction of Thomas A. Page, now chairman of the board, invented the model ultimately adopted by the Legislature. SDG&E felt that all customers — large and small — should benefit so it pushed the concept of a mandated universal rate cut.

Should stockholders in SDG&E's parent company, Enova Corp., be worried by a shift from monopoly status to the throes of competition?

Hardly, said Kyd. More than a decade ago Page shifted SDG&E's strategy from building power plants to purchasing power from other companies. Today, 60 percent of the electricity SDG&E provides is purchased from other companies.

A phase-in provision protects owners of inefficient, expensive or outmoded plants — stranded costs, in utility-speak. And Enova has in place six non-regulated subsidiaries to reap competition's benefits.

SDG&E isn't your grandmother's utility any more. It now has sisters that lease computer equipment, perform energy audits and deal in housing and commercial real estate.

SEVRENS is news editor of the Insight section.

Source: The San Diego Union-Tribune