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CPUC's Wood Pushes for Traditionally Regulated Utilities, Not Markets

CPUC's Wood Pushes for Traditionally Regulated Utilities, Not Markets

California's private-sector utilities are primed to get back into the power generation sector, and pending rate cases, integrated resource planning and resolution of the state's direct access program, all should be resolved this year by a combination of state regulatory and legislative actions, according to Carl Wood, the longest serving and most liberal commissioner of the five member California Public Utilities Commission.

While often on the losing end of 3-2 votes at the increasingly fractious regulatory panel, Wood downplayed differences among the commissioners -- all of whom were appointed by former Gov. Gray Davis -- during an interview last Friday with NGI/Power Market Today. Wood reiterated his strong preference for cost-based traditional regulation over reliance on markets, which he distrusts.

"I think cost-of-service rates through the utilities provides a stable base for setting rates and assuring we don't go through these wild fluctuations of price and supply (like three years ago)," Wood said. "It also assures that new generation will be built in a timely manner. Once the utilities are financially healthy, which should be soon, and they have no serious problem of getting new financing, then power plants can be built.

"Clearly, the (private-sector energy) marketers have (financing) problems at the present time. They cannot finance a plant in California without a contract with a utility for the output. To me, that is a very powerful statement on the inability of the market to assure adequate resources."

Although Wood thinks she didn't go far enough, California's senior U.S. Senator, Diane Feinstein, earlier in the month advocated a return to a "cost-of-service based system" for the state's major private sector utilities as part of a four-page letter to new Gov. Arnold Schwarzenegger urging him to work with her on establishing a "new energy framework" for the state.

While Wood and his colleague on the CPUC, Loretta Lynch, have voted against a number of major state regulatory decisions in recent months, including the Pacific Gas and Electric Co. bankruptcy settlement plan and the statewide "Energy Action Plan," Wood said he is not that far apart with the CPUC leadership, including Michael Peevey, a former utility executive. Wood is a former utility union official.

In his last year on the CPUC in 2004, Wood said he hoped "to continue to increase the proportion of utility-owned generation in the next year and reduce our exposure to wholesale markets. The thing that is actually happening and will be pretty well embedded by the first half of the year is all four of the major utilities will be firmly back on the path of cost-of-service ratemaking. We're doing rate cases for all of those utilities."

While Feinstein injected a sense of urgency in her letter to Schwarzenegger by quoting the state energy commission as saying some shortfalls in power could be experienced as early as this summer, Wood did not express immediate concerns about the state's power adequacy, and he is convinced that the energy action plan will provide a useful structure and guidance even though some of its specific outcomes won't occur as currently outlined. He did agree with Feinstein that the state's future direct access for the largest customers (500 kW or greater) needs to be resolved by the state legislature this year.

However, there are other issues coming out of the energy action plan that need to be resolved by the energy agencies themselves, and Wood thinks the CPUC cannot turn over transmission authority to the California Energy Commission, but it can make better use of the energy commission's expertise as part of the regulatory commission making its decisions on new transmission projects.

Wood essentially supports the thrust of Feinstein's suggestions to the new governor, many of which push for having the state regulators mandate that the private sector utilities fulfill their "obligation to serve," invest in integrated resources, boost their investments in new electric transmission, and generally beef up their distribution grids.

For the first quarter of this year, Wood predicted that a number of major rate cases and other issues would be decided by the CPUC, and he thinks many of them will be done on unanimous votes, although during that same period he hopes to have his and Lynch's lawsuit prevail in the PG&E utility settlement, forcing it to be modified so retail electric utility customers of PG&E end up paying less than they are now anticipated to pay over the next five to nine years.

In the meantime, Wood thinks the CPUC will come out with decisions on electricity procurement and the Southern California Gas Co. pipeline and storage unbundling, in addition to deciding the rate cases for the state's four major private-sector utilities -- Southern California Edison, and Sempra's two, SoCalGas and San Diego Gas and Electric Co., in addition to the PG&E utility.

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