'Sticker Shock' Shakes Up California Market
Energy industry giants, consumers and state energy policymakers
may all get their wishes fulfilled following a daylong "emergency
summit" last Wednesday in San Diego that was called to grapple with
the electricity supply and price crunch that has characterized
summer 2000 in the southern end of California.
The state's governor, legislature, and regulatory commission all
are actively considering potential changes to the market. Consumer
summer power bill relief, expedited siting of new electric
generating plants and revisions to some of the state electricity
industry restructuring rules may all flow from the meeting called
by San Diego Gas and Electric Co., which has been under siege from
consumers and politicians alike.
Several major power suppliers --- including Dynegy and Enron---
have committed to make offers for supplying relatively low-cost
electricity on an interim, emergency basis to relieve San Diego
consumers. The Catch 22 for the moment is that California's current
electricity reform law prevents the major electric investor-owned
utilities from buying power outside the state-chartered nonprofit
exchange. Thus, the supplies may have to be routed through the
Consumer bill payment deferrals, boycotts and discounts were
among the other assortment of rate relief measures discussed among
more than 100 industry representatives, including aggregators,
marketers, suppliers, regulators, policymakers and consumer groups.
Even with cooler weather and consumer temperament, the consensus is
that supply crunches and price spikes will return before the summer
and early fall are gone.
SDG&E, which has come under criticism for not doing enough
to buffer the impact of price spikes, has asked the California
Public Utilities Commission on an expedited basis to allow
customers to pay partial bills in July, step up demand-side
management programs and expand the utility's use of hedging through
participation in the Cal-PX block-forwards market, which the
state's two other major investor-owned utilities successfully used
in the past two months to save tens of millions or dollars,
according to a Cal-PX spokesperson.
Ed Guiles, SDG&E president, called the meeting "highly
productive," noting it was designed "to share ideas and determine
what can be done to lessen the impact of electricity prices." He
said SDG&E is committed to being "a match-maker between
consumers and energy service providers (ESPs) and between experts
in demand-side management.
"SDG&E may be able to buy purchased power for customers
through a new power-exchange program that would provide fixed
prices for a specific time period," said Guiles, referring to the
potential deals with an Enron or Dynegy. "We'll be working on that
with the ISO (state independent system operator, Cal-ISO) and the
power exchange (Cal-PX).
Duke Energy's Tom Williams, a California-based spokesperson,
reminded participants of the significant economic and weather
changes that have helped cause the situation now facing California,
including natural gas prices that are double what they were a year
ago. Williams stressed Duke is looking at an investment of $1.6
billion in four generating plants in the state, including one south
of San Diego that the company is now proposing to totally update on
an accelerated basis.
He emphasized that Duke's shareholders cannot follow through
with its planned investment without more "market and regulatory
stability" in California. Overall, natural gas-fired power plants
under construction or in the development process amount to more
than $10 billion in investment, according to the California
Independent Energy Producers.
"Fundamentally the market is sending the signal that the
supply-demand is in imbalance," said Nick Wallace, senior vice
president with Dynegy Marketing and Trading, which in partnership
with NRG Energy owns and operates gas-fired power plants in
Southern California. "We look forward to working with San Diego,
the ISO and the PX in finding market-based solutions."
The head of California's independent power producers' statewide
trade group and current chairman of the Cal-ISO board, Jan
Smutney-Jones, told the participants that "part of the reasons for
the high costs of power has to do with lack of resources," pointing
out that no major new power generation plants have been built in
the past decade in California. "A significant part of the state's
existing electrical capacity needs to be modernized," he said.
Smutney-Jones expressed support for the move by leaders from
both major political parties in the state legislature this week to
urge Gov. Gray Davis to formally ask for an expedited power
plant-siting process. A Cal-ISO executive said the growth in
electricity use in recent years has amounted to about 1,000 MW each
year, which he called the equivalent of "two new plants each year."
"In fairness to everyone, when the electric restructuring began
four years ago, there was a capacity surplus in the state," he
said. "The economy is booming, people all have computers, people
are using the Internet and they are using a lot more electricity
than they ever did before. Growth rates for electricity use in San
Diego and San Francisco have been around 6%.
"Where we are now is that we have to manage through this summer
and next summer and get those generation plants on line as quickly
Local consumer advocate, Michael Shames, Utility Consumer Action
Network (UCAN), said San Diego consumers deserved solutions, but
did not get them. He criticized most of the attendees for
conducting discussions that "should have been held six months ago."
He argued for an immediate re-institution of a rate freeze for
SDG&E customers as still exists for the customers of the two
other major investor-owned electric utilities in California.
"The issue is not that prices are going up - the issue is that
there was no protection, no safety net and nothing to protect
customer from rate shock," Shames said.
Both inside the summit and in the San Diego news media coverage
blame for California's situation was spread around to "a failed
regulatory system," inaction by SDG&E and "price gouging" by
Regarding the latter, Cal-ISO representatives said the grid
operator's market surveillance committee --- the watchdog for
"gaming" or market abuse in California's restructured electricity
industry --- said so far there has been no evidence of
Richard Nemec, Los Angeles