Energy industry giants, consumers and state energy policymakersmay all get their wishes fulfilled following a daylong “emergencysummit” last Wednesday in San Diego that was called to grapple withthe electricity supply and price crunch that has characterizedsummer 2000 in the southern end of California.

The state’s governor, legislature, and regulatory commission allare actively considering potential changes to the market. Consumersummer power bill relief, expedited siting of new electricgenerating plants and revisions to some of the state electricityindustry restructuring rules may all flow from the meeting calledby San Diego Gas and Electric Co., which has been under siege fromconsumers and politicians alike.

Several major power suppliers — including Dynegy and Enron—have committed to make offers for supplying relatively low-costelectricity on an interim, emergency basis to relieve San Diegoconsumers. The Catch 22 for the moment is that California’s currentelectricity reform law prevents the major electric investor-ownedutilities from buying power outside the state-chartered nonprofitexchange. Thus, the supplies may have to be routed through theCal-PX.

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

SDG&E, which has come under criticism for not doing enoughto buffer the impact of price spikes, has asked the CaliforniaPublic Utilities Commission on an expedited basis to allowcustomers to pay partial bills in July, step up demand-sidemanagement programs and expand the utility’s use of hedging throughparticipation in the Cal-PX block-forwards market, which thestate’s two other major investor-owned utilities successfully usedin 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 “highlyproductive,” noting it was designed “to share ideas and determinewhat can be done to lessen the impact of electricity prices.” Hesaid SDG&E is committed to being “a match-maker betweenconsumers and energy service providers (ESPs) and between expertsin demand-side management.

“SDG&E may be able to buy purchased power for customersthrough a new power-exchange program that would provide fixedprices for a specific time period,” said Guiles, referring to thepotential deals with an Enron or Dynegy. “We’ll be working on thatwith the ISO (state independent system operator, Cal-ISO) and thepower exchange (Cal-PX).

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

He emphasized that Duke’s shareholders cannot follow throughwith its planned investment without more “market and regulatorystability” in California. Overall, natural gas-fired power plantsunder construction or in the development process amount to morethan $10 billion in investment, according to the CaliforniaIndependent Energy Producers.

“Fundamentally the market is sending the signal that thesupply-demand is in imbalance,” said Nick Wallace, senior vicepresident with Dynegy Marketing and Trading, which in partnershipwith NRG Energy owns and operates gas-fired power plants inSouthern 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’ statewidetrade group and current chairman of the Cal-ISO board, JanSmutney-Jones, told the participants that “part of the reasons forthe high costs of power has to do with lack of resources,” pointingout that no major new power generation plants have been built inthe past decade in California. “A significant part of the state’sexisting electrical capacity needs to be modernized,” he said.

Smutney-Jones expressed support for the move by leaders fromboth major political parties in the state legislature this week tourge Gov. Gray Davis to formally ask for an expedited powerplant-siting process. A Cal-ISO executive said the growth inelectricity use in recent years has amounted to about 1,000 MW eachyear, which he called the equivalent of “two new plants each year.”

“In fairness to everyone, when the electric restructuring beganfour years ago, there was a capacity surplus in the state,” hesaid. “The economy is booming, people all have computers, peopleare using the Internet and they are using a lot more electricitythan they ever did before. Growth rates for electricity use in SanDiego and San Francisco have been around 6%.

“Where we are now is that we have to manage through this summerand next summer and get those generation plants on line as quicklyas possible.”

Local consumer advocate, Michael Shames, Utility Consumer ActionNetwork (UCAN), said San Diego consumers deserved solutions, butdid not get them. He criticized most of the attendees forconducting discussions that “should have been held six months ago.”He argued for an immediate re-institution of a rate freeze forSDG&E customers as still exists for the customers of the twoother major investor-owned electric utilities in California.

“The issue is not that prices are going up – the issue is thatthere was no protection, no safety net and nothing to protectcustomer from rate shock,” Shames said.

Both inside the summit and in the San Diego news media coverageblame for California’s situation was spread around to “a failedregulatory system,” inaction by SDG&E and “price gouging” bynonutility generators.

Regarding the latter, Cal-ISO representatives said the gridoperator’s market surveillance committee — the watchdog for”gaming” or market abuse in California’s restructured electricityindustry — said so far there has been no evidence ofprice-gouging.

Richard Nemec, Los Angeles

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