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One CA Generator Keeping Options Open

One CA Generator Keeping Options Open

Although none of the major merchant generators in California will talk about pulling back from the nation's largest electricity market, they are not happy with some of the proposals that have recently landed in the federal regulators' lap advocating price caps and cost-based ratemaking, at least for interim periods. Several generators noted this week they are watching the situation closely and intend to be heard at the federal level as well as among the California energy policymakers.

Like other generators, Dynegy is critical of what it calls "too much finger pointing and placing of blame," and not enough focus on longer term, market-based solutions, said Lynn Lednicky, Dynegy's executive in charge of its California operators. The generators argue that FERC is being made the primary forum even though most of the solutions it may develop will require state implementation.

"We're hoping California can come together in the next few months with a program that acknowledges that we are in a transition phase and gives a clear path to market solutions going forward, then we'll have a much more favorable view on California," said Lednicky, a Dynegy senior vice president.

"If California winds up in some type of cost-of-service arrangement, we are going to react accordingly (negatively) and it won't be very attractive to us. With everything up in the air right now, we are trying to assess the situation as best we can and keep our options open."

In principle, both Dynegy and Duke Energy, another merchant operator with substantial holdings in California, agree with last week's California Independent System Operator (Cal-ISO) FERC filing that calls for encouraging more load to be sold out of the spot market. However, the generators view that as including getting away from the bulk of the power going through the state-chartered, nonprofit California Power Exchange (Cal-PX).

Dynegy's Lednicky said other states are watching California closely to determine what not to do in terms of opening up electricity markets. He cites his home state of Texas as an example, which is staying away from creating a PX (mandated wholesale spot market) and concentrating on having a strong retail market.

"One of the lessons from California is that it is important to have a strong, competitive retail market because a great deal of the problems in California this summer were tied to the fact that San Diego Gas and Electric (SDG&E) let its customers be exposed entirely to the spot market, and the customers really had no choice," Lednicky said. "There were structural issues that effectively inhibited other electric service providers (ESPs) from competing. So when the shortage showed up, you had a provider (SDG&E) simply passing on wholesale prices, and that was not politically acceptable."

A situation that relies too heavily on the spot market creates economic and reliability problems, Lednicky said. "California shouldn't have to deal with these.

Richard Nemec, Los Angeles

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