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

The “generators, who happen to be out-of-state companies, arecharging 600 to 700 times for the same electricity we purchasedlast year,” said Gov. Davis as a press conference Wednesdayfollowing the release of the much-anticipated Commissioninvestigation report and companion order, which proposed a majoroverhaul 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 schemeenvisioned in the 1996 (state) law to charge what the market willbear. I am standing up and saying, ‘No more! We’re not going totake this lying down. We’re going to fight back,'” he toldreporters.

“I will fight for consumers. They should not bear the full bruntof this deregulation. At best, it was premature. The marketplace isnot prepared. The marketplace is dysfunctional and is notcompetitive.”

Although FERC did not award retroactive refunds to Californiacustomers that were hit with high prices this summer, aides to Gov.Davis said he will continue to press forward to seek some form ofprice relief for the state’s electricity customers, particularlythose in San Diego. The Commission, however, has vowed to provideprospective refund relief for power customers over the next twoyears.

Stephen E. Frank, chairman and president of Southern CaliforniaEdison, joined the governor in urging FERC to continue the”unfinished task of investigating past market power abuses bysellers and adopting effective structural remedies to make theCalifornia markets workably competitive.” Clearly, “more work isrequired here,” he said.

The results of FERC’s three-month investigation found “clearevidence” that the dysfunctional structure and rules of theCalifornia wholesale market “provide the opportunity for sellers toexercise market power when [power supplies are] tight and canresult in unjust and unreasonable rates,” but the Commission staffreported it failed to uncover any specific instances of abuse bypower suppliers.

Davis was certainly pleased with FERC’s decision to disband theexisting stakeholder boards for the California Independent SystemOperator (Cal-ISO) and the California Power Exchange (Cal-PX), andreplace them with independent boards. In fact, he said he wouldchange both organizations himself if he could.

“They [Cal-ISO and Cal-PX stakeholder governing boards] are tooself-serving, too in-bred, too incestuous and don’t representconsumer interests, plus you can’t hold anyone accountable. Thereis no one public official on any one of those boards. Theydetermine pretty much what the price of electricity is, and howshortages are allocated across the state. These are seriousresponsibilities given to these boards with no public members onthem.”

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

“We are pleased that FERC reaffirmed the price cap concept andthat the caps would apply to all parts of the spot markets inCalifornia. We are disappointed, however, with the cap limit of$150/MWh. We think this is too high.” Last month, Edison proposedthat the cap, which currently is at the $250/MWh level, be loweredto $100/MWh.

He strongly endorsed the Commission’s proposal to eliminate therequirement that the state’s three IOUs — Southern CaliforniaEdison, Pacific Gas and Electric (PG&E) and San Diego Gas andElectric — sell their generation into and buy from the Cal-PX.This “would free utilities to have broad discretion to buy power inother markets, expand our contracting ability, and enable us to useour own generation to better serve our customers,” Frank said.

PG&E applauded FERC’s investigation report and companionorder, saying they were a “sound beginning to the process ofrepairing the marketplace,” which President Gordon R. Smith said is”clearly broken.”

The FERC action came one day after PG&E made anunprecedented $790 million payment to the Cal-PX to cover wholesaleelectricity costs for the month of August, according to theutility. “We cannot continue to borrow money to pay excessivewholesale power prices, which will hit our customers sooner orlater. We welcome thoughtful intervention [by FERC] to repair themarket.”

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