Consumer Fixes for Restructuring Examined at NARUC Session
A California utility consumer advocate and a Kentucky-based
economist/consultant offered a national meeting of state regulatory
commissioners in San Diego last week different prescriptions for
providing long-term relief to retail consumers in the midst of
various electric industry restructuring efforts scattered around
The head of San Diego-based Utility Consumer Action Network
(UCAN), Michael Shames, and consultant Marty Blake, head of
Louisville, KY-based The Prime Group, offered seven- and four-step
fixes, respectively, although neither was certain their remedies
are either politically or economically realistic. Both believe that
more demand-side management is part of the answer, but they part
company on the issue of price varability and whether or not it
should he allowed to continue in the name of promoting competitive
A veteran of California's nearly decade-long push for
restructuring, Shames summarized seven challenges for California to
keep its sinking wholesale power market afloat, but both he and the
regulators in attendance indicated that the seven are not
necessarily consistent or complementary.
"California is known as a land of 'extremes', but when it came
to electric restructuring we went too extreme and we didn't have a
safety net in place for small power users," Shames said.
"California could go back to extreme regulation, but I don't think
it will. Other states are likely to face some of the same
Shames said California is going to have to look at three
different time frames in trying to fix its broken electricity
markets --- one year, three to five years and longer term --- and
it is going "to hope the one-year short fix doesn't ruin the
foundation to be laid for the longer term solutions." He said one
of the solutions longer term is for all of the electricity
stakeholders 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 a
political solution must be included in the remedies, even though he
thinks most of the stakeholders don't really understand all of the
political ramifications. "Certainly in California, and probably in
the other states, you have to be thinking with your political caps
on," Shames told the regulators gathered in San Diego.
Among the other six challenges are developing innovations and
technological advances, which Shames argued is the prime rational
for deregulating in the first place because a monopoly utility
structure will never allow innovation to take hold. His other five
challenges involve: creating sufficient new generation, protecting
retail customers, promoting demand-side management, creating retail
competition and finally, achieving real wholesale competition.
Regarding the latter, Shames agreed with California's Gov. Gray
Davis that "FERC hasn't gotten it right yet."
Strongly disputing the expectation that when markets are working
correctly volatility stops, Marty Blake summarized his "fixes" in
four categories: (1) developing real-time pricing for all
customers, (2) mandating minimum reserve levels on the grid, (3)
accelerating the siting of new transmission lines and power plants
and (4) really injecting more demand-responsiveness in the markets.
"The way we have prices set completely takes demand-response out
of the picture," Blake said. "We carry a lot of baggage from our
old regulated background. Average prices work well under regulation
but they don't get the job done in a market. You can't run a market
with prices set by averages; it will not work. Markets increase
price variability; averages dampen it.
"If you are going to go a competitive route, you need real-time
pricing. And if you want innovation, you are not going to get it
with average prices."
Blake said there is too much emphasis on the supply side for
solutions. Distributed generation, on-site power and DSM-type
efforts need more attention, and he is not sure the local utilities
are the place to look for these programs, he told the state
regulators 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,"
Richard Nemec, Los Angeles