Gov. Davis Says 'No More' to High Power Prices

Despite FERC findings to the contrary, California Gov. Gray Davis and top officials at the state's investor-owned utilities (IOUs) are far from convinced that out-of-state electricity suppliers didn't act illegally this summer, causing the huge run-up in power prices in the wholesale market.

The "generators, who happen to be out-of-state companies, are charging 600 to 700 times for the same electricity we purchased last year," said Gov. Davis as a press conference Wednesday following the release of the much-anticipated Commission investigation report and companion order, which proposed a major overhaul of the California power market.

"You can't add value to an electron. An electron is an electron. They are simply taking advantage of an ill-advised scheme envisioned in the 1996 (state) law to charge what the market will bear. I am standing up and saying, 'No more! We're not going to take this lying down. We're going to fight back,'" he told reporters.

"I will fight for consumers. They should not bear the full brunt of this deregulation. At best, it was premature. The marketplace is not prepared. The marketplace is dysfunctional and is not competitive."

Although FERC did not award retroactive refunds to California customers that were hit with high prices this summer, aides to Gov. Davis said he will continue to press forward to seek some form of price relief for the state's electricity customers, particularly those in San Diego. The Commission, however, has vowed to provide prospective refund relief for power customers over the next two years.

Stephen E. Frank, chairman and president of Southern California Edison, joined the governor in urging FERC to continue the "unfinished task of investigating past market power abuses by sellers and adopting effective structural remedies to make the California markets workably competitive." Clearly, "more work is required here," he said.

The results of FERC's three-month investigation found "clear evidence" that the dysfunctional structure and rules of the California wholesale market "provide the opportunity for sellers to exercise market power when [power supplies are] tight and can result in unjust and unreasonable rates," but the Commission staff reported it failed to uncover any specific instances of abuse by power suppliers.

Davis was certainly pleased with FERC's decision to disband the existing stakeholder boards for the California Independent System Operator (Cal-ISO) and the California Power Exchange (Cal-PX), and replace them with independent boards. In fact, he said he would change both organizations himself if he could.

"They [Cal-ISO and Cal-PX stakeholder governing boards] are too self-serving, too in-bred, too incestuous and don't represent consumer interests, plus you can't hold anyone accountable. There is no one public official on any one of those boards. They determine pretty much what the price of electricity is, and how shortages are allocated across the state. These are serious responsibilities given to these boards with no public members on them."

Edison's Frank had a mixed reaction to the Commission's proposal for a "soft" price cap of $150/MWH in the markets operated by the Cal-ISO and Cal-PX. Under the proposal, sellers can bid above the $150/MWh level, but such bids would not set the market clearing price.

"We are pleased that FERC reaffirmed the price cap concept and that the caps would apply to all parts of the spot markets in California. We are disappointed, however, with the cap limit of $150/MWh. We think this is too high." Last month, Edison proposed that the cap, which currently is at the $250/MWh level, be lowered to $100/MWh.

He strongly endorsed the Commission's proposal to eliminate the requirement that the state's three IOUs --- Southern California Edison, Pacific Gas and Electric (PG&E) and San Diego Gas and Electric --- sell their generation into and buy from the Cal-PX. This "would free utilities to have broad discretion to buy power in other markets, expand our contracting ability, and enable us to use our own generation to better serve our customers," Frank said.

PG&E applauded FERC's investigation report and companion order, saying they were a "sound beginning to the process of repairing the marketplace," which President Gordon R. Smith said is "clearly broken."

The FERC action came one day after PG&E made an unprecedented $790 million payment to the Cal-PX to cover wholesale electricity costs for the month of August, according to the utility. "We cannot continue to borrow money to pay excessive wholesale power prices, which will hit our customers sooner or later. We welcome thoughtful intervention [by FERC] to repair the market."

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