California Threatens Market Takeover

Threatening takeover of the state's electric infrastructure, California officials Tuesday continued their unwavering call for the Federal Energy Regulatory Commission to provide consumer refunds and cost-based rates to stabilize wholesale markets in the state and throughout the western U.S.

If these actions aren't taken, California will be forced to go to court and eventually create its own public power agency to provide generation at "justifiable prices," the state officials told FERC Chairman James Hoecker and Commissioner William Massey. The two presided at a FERC public conference in San Diego, the second held by the Commission to hear comments on the Commission's proposal to overhaul the "seriously flawed" rules and structure of the California bulk power market. FERC proposed a "soft" $150/MWh cap on power sales into the Cal-ISO and Cal-PX over the next two years, and rules changes for those agencies, but said it would not grant consumer refunds (see Daily GPI, Nov. 2 and Nov. 10).

"We will resort to any remedy available to us," Gov. Gray Davis said. "We won't stand by idly and let these higher rates happen again." Accusing FERC of being too focused on generators and utilities, Davis reiterated his call for the federal refunds to consumers "who continue to be gouged by generators and marketers." He also said the Commission should impose "hard price and bid caps" until competitive markets are a reality. It is "incomprehensible" that FERC hasn't already ordered the refunds based on its own conclusion that wholesale prices are unjust and unreasonable.

Davis said FERC's proposed soft caps and other measures would maket the situation "worse" next summer. The deregulation experiment will end and consumers will resort to the ballot box if FERC doesn't act, he continued, referring to the state's referendum process. State Sen. Steve Peace, a prime architect of the 1996 state electric restructuring law, challenged FERC to "interpret its power broadly" as he said the federal regulators did when they originally opened up the wholesale power market eight years ago without congressional authority to do so. Citing an old Federal Register report, Peace said FERC originally projected wholesale deregulation could create savings of $3.8 to $5.4 billion annually and result in power generation prices in the 3.5 cents per kWh range. Instead, Peace said, prices Monday in the day ahead California market were 18 cents per kWh.

Peace said FERC "will never reach the goal of competitive markets unless it uses cost-based rates to create a stable platform from which to work."

Local officials and consumer representatives indicated that without re-regulation by FERC, the state and local jurisdictions will look to creating government-run power organizations. The chairwoman of the San Diego County Board of Supervisors said she is sure the state will move to create a public power agency if FERC does not fix the problem. FERC has a "legal, moral and ethical obligation:" to investigate the merchant generators.

At a press conference following his appearance before the commissioners, Davis, however, indicated he did not think the generators necessarily had done anything illegal, but indicated the state attorney general is still looking at that question.

At Hoecker's urging the governor said the state would submit its own proposals to FERC by Dec. 1, so they can be considered when the federal regulators make a final decision Dec. 13.

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