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Special Forward-Market Purchases Proposed for SDG&E on Cal-PX

Special Forward-Market Purchases Proposed for SDG&E on Cal-PX

By the end of last week with rising temperatures, peak demand and political heat, San Diego Gas and Electric Co. and the California Power Exchange (Cal-PX) worked out a proposal for the utility to purchase fixed price electricity through forward markets already in place at the Cal-PX over a longer term five- to nine-month period into next spring. SDG&E has asked state regulators to okay the purchases at their Aug. 3 meeting.

The move is a direct outgrowth of the push by state officials, consumer groups and SDG&E to provide some immediate relief and protection against electricity price spikes which are inevitable when temperatures rise because of California's clearly constrained power generation and transmission infrastructure.

"We hope the California Public Utilities Commission will allow us to implement the program as soon as possible because our customers need help today," said Ed Guiles, SDG&E president, noting that the proposal is a market-based approach to easing price volatility for customers.

This concluded a flurry of activity last week among regulators, legislators and consumers, and inevitably there is now a state legislative hearing being called to examine whether the state's ongoing electric industry restructuring should be halted, revised or otherwise altered to shield retail customers from the daily volatility of electricity prices.

At its meeting last Thursday, the CPUC postponed until its Aug. 3 meeting addressing the growing concerns of consumers and consumer groups over rate shock in the greater San Diego area. Competing proposals for rate relief have been made by consumer groups and SDG&E, and one CPUC member issued a draft order last week supporting the San Diego utility's approach, rejecting the consumer groups' call for a rate freeze. San Francisco-based TURN (The Utility Reform Network), a long-time utility consumer watchdog group, blasted the draft decision in a letter to the CPUC on Wednesday, saying it would "assign the burden of the market's failure entirely and exclusively to consumers."

Citing legal requirements for public notice and "fair, equitable treatment," CPUC Commissioner Henry Duque, sponsor of the draft decision, said it was impossible for the regulators to act this week.

At the same time the regulators were meeting last week, another part of the state government, the nonprofit independent electric transmission grid operator, Cal-ISO, issued a Stage One electrical emergency urging consumers to voluntarily cutback on electrical use through Thursday evening due (again) to a combination of hot weather and "lack of available generation" in Southern California. Cal-ISO described the problem as a combination of heat throughout the Southwest and infrastructure limitations within California's grid system.

"The major reason reserves (of electricity) are low is unavailable generation within Southern California and limited imports from the Southwest which is also experiencing extreme hear," the Cal-ISO Stage One announcement stated. "Electricity from Northern California and the Pacific Northwest is available but transmission limitations will not allow the transport of all of the energy needed to the south end of the state."

Consumer groups and some former and existing elected officials are blaming the situation on the state's 1996 electric industry restructuring law, under which there are still almost two years of transition before all California consumers of the three major investor-owned utilities are subjected to the price volatility that San Diegans have experienced. A rollback of the deregulation or re-imposing a rate freeze in San Diego are being debated.

CPUC Commissioner Carl Wood who held a press conference last week on electric issues in San Diego said there is a "sense of urgency and desperation" among San Diego consumers right now, facing bills "that are nearly twice what they encountered only a year ago" (see related story this issue).

Ironically, most of the proposals for longer term curbing of price volatility are coming at a time when San Diego electric customers are set to receive a $500 million rate give-back windfall in August and September. Almost $400 million comes from electric restructuring overcharges that will provide an average of $260 to each residential customer, and another $100 million SDG&E has asked the CPUC on an emergency basis to give back to utility ratepayers from excess revenues the utility gained in the recent peak-load period from its continuing ownership of part of a California-based nuclear plant (20%) and some purchased power contracts.

Since rolling blackouts were called one day in the San Francisco Bay Area during an unusually long heat spell in the northern half of the state in mid-June, political pressure has heightened, spawning almost continuous activity throughout the state. The actions and pending actions include:

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