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
"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
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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