A California utility consumer advocate and a Kentucky-basedeconomist/consultant offered a national meeting of state regulatorycommissioners in San Diego last week different prescriptions forproviding long-term relief to retail consumers in the midst ofvarious electric industry restructuring efforts scattered aroundthe nation.

The head of San Diego-basedUtility Consumer Action Network(UCAN), Michael Shames, and consultant Marty Blake, head ofLouisville, KY-based The Prime Group, offered seven- and four-stepfixes, respectively, although neither was certain their remediesare either politically or economically realistic. Both believe thatmore demand-side management is part of the answer, but they partcompany on the issue of price varability and whether or not itshould he allowed to continue in the name of promoting competitivemarkets.

A veteran of California’s nearly decade-long push forrestructuring, Shames summarized seven challenges for California tokeep its sinking wholesale power market afloat, but both he and theregulators in attendance indicated that the seven are notnecessarily consistent or complementary.

“California is known as a land of ‘extremes’, but when it cameto electric restructuring we went too extreme and we didn’t have asafety net in place for small power users,” Shames said.”California could go back to extreme regulation, but I don’t thinkit will. Other states are likely to face some of the sameproblems.”

Shames said California is going to have to look at threedifferent time frames in trying to fix its broken electricitymarkets — one year, three to five years and longer term — andit is going “to hope the one-year short fix doesn’t ruin thefoundation to be laid for the longer term solutions.” He said oneof the solutions longer term is for all of the electricitystakeholders to agree on a solution and send it to the governor,but he does not think that is politically realistic.

At the head of Shames’ seven challenges is a realization that apolitical solution must be included in the remedies, even though hethinks most of the stakeholders don’t really understand all of thepolitical ramifications. “Certainly in California, and probably inthe other states, you have to be thinking with your political capson,” Shames told the regulators gathered in San Diego.

Among the other six challenges are developing innovations andtechnological advances, which Shames argued is the prime rationalfor deregulating in the first place because a monopoly utilitystructure will never allow innovation to take hold. His other fivechallenges involve: creating sufficient new generation, protectingretail customers, promoting demand-side management, creating retailcompetition and finally, achieving real wholesale competition.Regarding the latter, Shames agreed with California’s Gov. GrayDavis that “FERC hasn’t gotten it right yet.”

Strongly disputing the expectation that when markets are workingcorrectly volatility stops, Marty Blake summarized his “fixes” infour categories: (1) developing real-time pricing for allcustomers, (2) mandating minimum reserve levels on the grid, (3)accelerating the siting of new transmission lines and power plantsand (4) really injecting more demand-responsiveness in the markets.

“The way we have prices set completely takes demand-response outof the picture,” Blake said. “We carry a lot of baggage from ourold regulated background. Average prices work well under regulationbut they don’t get the job done in a market. You can’t run a marketwith prices set by averages; it will not work. Markets increaseprice variability; averages dampen it.

“If you are going to go a competitive route, you need real-timepricing. And if you want innovation, you are not going to get itwith average prices.”

Blake said there is too much emphasis on the supply side forsolutions. Distributed generation, on-site power and DSM-typeefforts need more attention, and he is not sure the local utilitiesare the place to look for these programs, he told the stateregulators in attendance.

“We’re going to continue to see price variability, and, in fact,if we don’t get it, the peaking units we need won’t get built,”Blake said.

Richard Nemec, Los Angeles

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