Californians Scramble for Solutions to Power Woes
As cooler-than-normal temperatures statewide reduced peak-power
demand to winter levels, California last week was awash in proposed
solutions to its electricity price and supply problems, which are
likely to be much more severe next summer.
The state's two biggest investor-owned utilities, as expected,
asked state regulators last week for billions of dollars in rate
relief from the summer's wholesale price spikes. In what it called
"an extraordinary petition borne of extraordinary circumstances,"
Southern California Edison Co. Oct. 4 asked for assurances from the
California Public Utilities Commission (CPUC) that any
under-collections of its power costs - which totaled $1.97 billion
at the end of August - existing after the current retail rate
freeze is lifted can be recovered in future charges to utility
customers. Pacific Gas and Electric Co., citing unrecovered costs
exceeding $2 billion, made a similar filing the same day. Both are
asking the CPUC for "expedited" action so the two utilities can
maintain their financial standing.
The CPUC will meet in a special session Tuesday (Oct. 10) to
decide whether to grant the utilities expanded debt authority to
pay for the high wholesale power costs in the interim before the
larger under-collection issue is resolved.
In response to the utilities asking for eventual rate hikes to
cover the costs, a coalition of consumer activists created an
overflow crowd at last Thursday's CPUC meeting in San Francisco,
presenting the five-member regulatory panel with a 10-point
"Marshall Plan" for energy that would allow low-income and senior
citizens to avoid having to pay any higher utility bills in the
In the state capital, separate proposals for heading off
blackouts next summer surfaced from the state independent
transmission grid operator, Cal-ISO, and the association of 30
government-run utilities. The latter, the California Municipal
Utility Association (CMUA), unveiled a four-part "market reform"
plan whose principal change would be to replace the Cal-ISO with a
government agency that would own and operate the state's entire
grid, with a move to eventually join a multi-state regional
transmission organization (RTO).
ISO Expands into Generation
Cal-ISO's 26-member board Oct. 4 expanded into the generation
sector by authorizing its staff to line up 2,000 MW of temporary
summer peaking power for next year. At the same time, the board
rejected a consumer and utility-sponsored proposal for the grid
operator to establish wholesale price caps targeted at specific
generators or demand levels.
A month-long Cal-ISO bidding program concluded Sept. 24 resulted
in 79 proposals totaling almost 4,500 MW; the grid operator's board
decided to go after the most realistic 2,000 MW of that grouping,
with the estimated total cost of the peak-demand power not to
exceed $255 million ($125/kW).
The Cal-ISO would have the right to call on the peaking power
for up to 500 hours each summer season (June 1-Oct. 31) in exchange
for a capacity payment. Cal-ISO would require that the generation
"be scheduled in the forward markets to the extent possible,"
according to the Cal-ISO public announcement on the board action.
A combination of continued robust economic growth throughout the
West and dwindling supplies from out of state make blackouts in
California more likely next summer, the Cal-ISO CEO, Terry Winter,
told the board before it took action. Even conservative
statistics cause Winter to think shortfalls will be much more
significant next year in the face of summer peak demands, which
could be up to 5,000 MW larger than this summer. Winter added that
this year was not defined as a "hot" summer by traditional
definitions, despite a record number of Stage 1 and 2 power alerts
by the Cal-ISO through August.
Under Winter's scenario, the shortfall has to be made up from
three sources: (1) out-of-state generation, (2) new generation
in-state, and (3) voluntary curtailment of loads and demand-side
management. At best-based on current growth throughout the
West-California can count on only about 4,000 MW from out-of-state,
Winter said. Voluntary curtailments may bring as much as 2,000 MW
and the new generating plants scheduled to come on line total
another 1,000 MW.
The Utility Reform Network (TURN), with support of Southern
California Edison, proposed that Cal-ISO impose load differentiated
wholesale price caps based on the size of demand at various times
during a 24-hour period. The board rejected the request, and
Pacific Gas and Electric Co., which was expected to recommend some
form of cost-based wholesale price caps, decided not to present its
In the public sector, CMUA hopes to influence plans now being
formulated by state policymakers, and it comes at a time when the
Cal-ISO is being criticized in some quarters for branching into the
generation sector with its latest move to secure temporary summer
peaking power. As a second part of its proposal, CMUA filed last
Thursday with the Federal Energy Regulatory Commission to
re-regulate wholesale electricity prices on a cost-based basis by
targeting cost-based caps on specific generators.
CMUA Executive Director Jerry Jordan said the public sector
utilities think "it is time to take action to restore consumer
confidence" in California's electricity market.
"California has a serious supply and demand problem caused by
load growth, aging plants and the ability of even small power plant
owners to exercise market power," said Roger Fontes, assistant
general manager of the Northern California Power Agency, a group of
publicly owned utilities, all of whom are part of CMUA. The head of
the Sacramento Municipal Utility District (SMUD), Jan Schori, noted
that it paid an additional $66 million for purchased power this
summer as a result of wholesale price spikes.
The other two steps in CMUA's four-part plan are: (1) assuring
reasonably priced supplies for residential and small business
customers to buffer them from wholesale price volatility and (2)
giving small consumers more options to control their electricity
demand through DSM, load management and distributed generation
CMUA is taking the position that both state and federal actions
are needed to correct market flaws, and that among those
corrections is the need to replace the existing nonprofit,
state-chartered grid operator (Cal-ISO) by a public agency
"TRANSCO" that will evolve into a multi-state regional transmission
"It is important that we get some organization with the
responsibility and authority to build transmission," said S. David
Freeman, general manager of the City of Los Angeles Department of
Water and Power (LADWP). "If you think about new generation as like
cars and the transmission system as an electrical highway, we can
make all the cars in the world, but if we don't have enough lanes
for them to move on, we are going to have a problem.
"Transmission is as much of an essential item as power plants.
All the attention the legislature has given the generating plant
siting laws is necessary, but insufficient in getting a balance of
supply and demand."
Fitch's Steven Fetter, a former Michigan regulator and long-time
critic of California restructuring, said, "If the politicians try
to fix things in California, they cannot let the market go
full-speed ahead while they try to fix it. They will have to bring
it into the pits to try to start working on it."
Freeman suggested putting price controls back on until the
market is truly competitive. "I think we put the cart before the
horse. We thought we'd automatically have a competitive market
because of the religious faith of a bunch of economists. I assumed
the market would work, we all did, but it is time for a little mea
culpa in facing up to the fact that it hasn't worked. Therefore, we
should keep prices under control until we can find that the market
Because California's municipals overall have generally fared
very well in the midst of the supply and price crunch faced by the
three major private sector utilities this summer, CMUA is proposing
that cost-based, closely regulated vertically integrated utilities
be considered as a "valid model, but not necessarily the only one,"
"We're not saying to throw in the towel [on restructuring]," he
said. "We're saying it is seriously broken right now, and we need
to get a hold of it and have a more thoughtful transition."
Richard Nemec, Los Angeles