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'Sticker Shock' Shakes Up California Market

'Sticker Shock' Shakes Up California Market

Energy industry giants, consumers and state energy policymakers may all get their wishes fulfilled following a daylong "emergency summit" last Wednesday in San Diego that was called to grapple with the electricity supply and price crunch that has characterized summer 2000 in the southern end of California.

The state's governor, legislature, and regulatory commission all are actively considering potential changes to the market. Consumer summer power bill relief, expedited siting of new electric generating plants and revisions to some of the state electricity industry restructuring rules may all flow from the meeting called by San Diego Gas and Electric Co., which has been under siege from consumers and politicians alike.

Several major power suppliers --- including Dynegy and Enron--- have committed to make offers for supplying relatively low-cost electricity on an interim, emergency basis to relieve San Diego consumers. The Catch 22 for the moment is that California's current electricity reform law prevents the major electric investor-owned utilities from buying power outside the state-chartered nonprofit exchange. Thus, the supplies may have to be routed through the Cal-PX.

Consumer bill payment deferrals, boycotts and discounts were among the other assortment of rate relief measures discussed among more than 100 industry representatives, including aggregators, marketers, suppliers, regulators, policymakers and consumer groups. Even with cooler weather and consumer temperament, the consensus is that supply crunches and price spikes will return before the summer and early fall are gone.

SDG&E, which has come under criticism for not doing enough to buffer the impact of price spikes, has asked the California Public Utilities Commission on an expedited basis to allow customers to pay partial bills in July, step up demand-side management programs and expand the utility's use of hedging through participation in the Cal-PX block-forwards market, which the state's two other major investor-owned utilities successfully used in the past two months to save tens of millions or dollars, according to a Cal-PX spokesperson.

Ed Guiles, SDG&E president, called the meeting "highly productive," noting it was designed "to share ideas and determine what can be done to lessen the impact of electricity prices." He said SDG&E is committed to being "a match-maker between consumers and energy service providers (ESPs) and between experts in demand-side management.

"SDG&E may be able to buy purchased power for customers through a new power-exchange program that would provide fixed prices for a specific time period," said Guiles, referring to the potential deals with an Enron or Dynegy. "We'll be working on that with the ISO (state independent system operator, Cal-ISO) and the power exchange (Cal-PX).

Duke Energy's Tom Williams, a California-based spokesperson, reminded participants of the significant economic and weather changes that have helped cause the situation now facing California, including natural gas prices that are double what they were a year ago. Williams stressed Duke is looking at an investment of $1.6 billion in four generating plants in the state, including one south of San Diego that the company is now proposing to totally update on an accelerated basis.

He emphasized that Duke's shareholders cannot follow through with its planned investment without more "market and regulatory stability" in California. Overall, natural gas-fired power plants under construction or in the development process amount to more than $10 billion in investment, according to the California Independent Energy Producers.

"Fundamentally the market is sending the signal that the supply-demand is in imbalance," said Nick Wallace, senior vice president with Dynegy Marketing and Trading, which in partnership with NRG Energy owns and operates gas-fired power plants in Southern California. "We look forward to working with San Diego, the ISO and the PX in finding market-based solutions."

The head of California's independent power producers' statewide trade group and current chairman of the Cal-ISO board, Jan Smutney-Jones, told the participants that "part of the reasons for the high costs of power has to do with lack of resources," pointing out that no major new power generation plants have been built in the past decade in California. "A significant part of the state's existing electrical capacity needs to be modernized," he said.

Smutney-Jones expressed support for the move by leaders from both major political parties in the state legislature this week to urge Gov. Gray Davis to formally ask for an expedited power plant-siting process. A Cal-ISO executive said the growth in electricity use in recent years has amounted to about 1,000 MW each year, which he called the equivalent of "two new plants each year."

"In fairness to everyone, when the electric restructuring began four years ago, there was a capacity surplus in the state," he said. "The economy is booming, people all have computers, people are using the Internet and they are using a lot more electricity than they ever did before. Growth rates for electricity use in San Diego and San Francisco have been around 6%.

"Where we are now is that we have to manage through this summer and next summer and get those generation plants on line as quickly as possible."

Local consumer advocate, Michael Shames, Utility Consumer Action Network (UCAN), said San Diego consumers deserved solutions, but did not get them. He criticized most of the attendees for conducting discussions that "should have been held six months ago." He argued for an immediate re-institution of a rate freeze for SDG&E customers as still exists for the customers of the two other major investor-owned electric utilities in California.

"The issue is not that prices are going up - the issue is that there was no protection, no safety net and nothing to protect customer from rate shock," Shames said.

Both inside the summit and in the San Diego news media coverage blame for California's situation was spread around to "a failed regulatory system," inaction by SDG&E and "price gouging" by nonutility generators.

Regarding the latter, Cal-ISO representatives said the grid operator's market surveillance committee --- the watchdog for "gaming" or market abuse in California's restructured electricity industry --- said so far there has been no evidence of price-gouging.

Richard Nemec, Los Angeles

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