Duke Proposes to Manage San Diego Electricity
Duke Energy Monday offered to manage San Diego Gas and
Electric's entire power supply in its comments to the Federal
Energy Regulatory Commission on proposals for solving California's
nagging wholesale electricity problems. There are no negotiations
ongoing, and SDG&E initially indicated it has not received any
formal offer from Duke.
In essence, the Duke proposal would allow the Sempra Energy
utility to get out of the electricity supply business and
concentrate on being an energy delivery service company, which
Sempra's CEO Steve Baum reiterated earlier this fall is the
utility's strategic goal. Retail customers would be shielded from
wholesale power price volatility by the proposed five-year deal at
a fixed $60/MW price.
"If and when we do (receive a formal offer), we will consider it
carefully along with others we have received," said a San
Diego-based Sempra spokesperson, who noted that even if the utility
received a written offer, it lacks the "legal authority to act"
because state regulators have only given SDG&E authority to
purchase up to half of its energy requirements outside of the
state-chartered wholesale spot power market (Cal-PX).
SDG&E's reaction further reiterated its corporate reluctance
to strike any long-term deals (more than a year or two) at this
time when the market is in such a flux and before FERC has acted to
stabilize wholesale prices. "We suspect Duke would like to make a
long-term deal now before regulators institute structural changes
in the California marketplace that should help lower prices," the
spokesperson said. "The wisdom of locking up electricity at today's
high prices for all SDG&E customers has to be questioned."
The Sempra spokesperson confirmed that SDG&E has entered
into some longer-term bilateral deals for power supplies, but noted
that they have not as yet been formally submitted to the California
Public Utilities Commission for approval as have similar deals by
the other two major investor-owned utilities in the state. The
deals have been discussed with the CPUC staff, however, the
Duke's California spokesperson noted that its proposal was based
on Nov. 17, 2000 electricity and natural gas prices, both of which
have bounced dramatically up and down since that date 10 days ago.
The spokesperson confirmed that Duke has now made offers to all
three of California's major private sector electric utilities, but
the SDG&E proposal would be for greater volumes than what has
been put on the table with Pacific Gas and Electric and Southern
"The (proposal for) 3,300 MW represents the full electricity
load SDG&E needs to serve its retail customer base during the
hottest summer day," said Jeff Stokes, executive vice president for
the western region of Duke Energy North America, noting that Duke
has once again "stepped up with tangible, market-based solutions."
Duke's California spokesperson emphasized that the deals already
signed with the other two utilities, and any deal that may be
struck with SDG&E, "need to be dealt with pretty quickly" by
state regulators since the "prices continue to go up."
In discussing this proposal in its FERC filing, Duke reiterated
its long-term commitment to the development of energy markets in
California and reminded regulators that if the California utilities
had done more deals for fixed-price, hedge contracts last spring
and summer, consumers would have been protected more from the
wholesale price spikes.
"Obviously, events this past summer were not so favorable to the
load-serving utilities," Duke stated in its FERC filing. "Hemmed in
by restrictive state rules, and reluctant to manage market risk
aggressively, the load-serving utilities took no effective measures
to manage billions of dollars in price risks associated with
fluctuating supply and demand conditions."
"Moreover, load-serving utilities exacerbated the impact of
price volatility by leaving increased portions of their load
unscheduled in the day-ahead and one-hour ahead markets, thereby
forcing the ISO to rely far more heavily than intended on real-time
purchases, from within and outside California."
As part of the federal filing, Duke divulged that on Nov. 15 it
signed a five-year, fixed-price wholesale contract with SoCal
Edison, noting that it is similar to a deal signed with PG&E's
utility Oct. 30, but keeping terms and prices confidential. Both
contracts, along with some other bilateral, fixed-price deals, are
awaiting approval from the California Public Utilities Commission,
which is reluctant to act with the market still wrapped in so much
uncertainty and volatility for fear of future second-guessing from
state elected officials.
Noting that it intends to do more forward contracts in addition
to building new power generation in the state, Duke said in its
filing it "foresees opportunities for the market to offer a
portfolio of radically new forward contracts," if state regulators
change their rules so "competitively bid" forward deals are not
second-guessed in prudency review proceedings.
Richard Nemec, Los Angeles