NGI The Weekly Gas Market Report / NGI All News Access

Consumer Fixes for Restructuring Examined at NARUC Session

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 nation.

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 markets.

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 problems."

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," Blake said.

Richard Nemec, Los Angeles

©Copyright 2000 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

Comments powered by Disqus