State officials have launched an all-out effort to cure or atleast contain California’s runaway electric power market, sending$100 million in rate relief to customers of San Diego Gas &Electric, putting construction of new power plants on a fast trackand loosening the grip of the California Power Exchange (Cal-PX).

According to observers, the most far-reaching action may havebeen that of the California Public Utilities Commission (CPUC)yesterday in allowing utilities to enter into bilateral powersupply contracts outside the state-created monolithic Cal-PX.Investor-owned utilities had been prohibited from doing so underthe state’s electric restructuring.

John Stout, Houston-based vice president with Reliant Energy,who oversees its California operations, pointed to the prohibitionas “a fundamental market design flaw that forces all demand throughthe wholesale spot market (Cal-PX).” He said ideally the IOUsshould only be buying about 15% or 20% of their supplies throughthe PX and that would moderate prices overall, but he added newgeneration is also needed to alleviate the supply crunch.

Freeing utilities to enter into bilateral supply contracts wasone of nine items approved unanimously by the CPUC yesterday. Theagency also gave utilities authority to encourage various purchasedpower (QF) suppliers to offer supplies above-contract but below theCal-PX price as another means of tempering price spikes.

Another major move was to grant Southern California Edison arequest to re-operate one of the smaller power plants it had soldon an interim basis.

The agency’s actions came after California Gov. Gray DavisWednesday issued executive orders to speed up the approval processfor new power plants, cut down electricity use in state facilitiesand establish a statewide task force on energy reliability modeledafter the federal government’s National Security Council. Thegovernor acted on the basis of a strongly worded 40-page emergencyreport on California’s power shortfalls this summer submitted bythe CPUC president and the Electricity Oversight Board chairman.

The governor and state legislative and regulatory officials seethe state’s economic and political security being threatened bypeak electric supplies that are stretched dangerously thin and bywholesale power price spikes. Davis also formally asked the stateattorney general’s office to investigate “possible manipulation inthe wholesale electricity marketplace.”

The governor’s action came on the same day San Diego Gas &Electric petitioned FERC, asking the federal agency to install a$250/MWh price cap on sellers’ offerings of power into California’sbulk power markets. FERC action is necessary, the utility said becausea $250 cap installed by the California Independent System Operator(Cal-ISO) Aug. 1 only limits extra emergency power supplies and doesnot apply to the day-ahead or forward markets operating through theCal-PX. FERC action is needed to rein in the Cal-PX. (see Daily GPI,Aug. 2)

SDG&E’s filing noted fueling costs for power generation weredouble those of a year ago, but “higher gas prices do not begin toexplain the dramatically elevated prices that prevail in 2000compared to 1999” during high use periods. While gas prices haverisen to a June/July average at the Southern California border of$4.62, compared to $2.30 in the same period in 1999, that onlyequates to $60/MWh versus $36/MWh. It does not explain triple digitpower price increases, SDG&E said.

The state report noted costs for wholesale power since mid-Junehave averaged 270% above the same period in 1999, which experiencedcooler-than-normal weather. The total electricity bill forCalifornia was $1 billion higher over the period, and Californianswill pay billions of dollars more before the summer is complete.The report includes 30 possible actions – many of which already areunder way – and it makes numerous references to FERC actions thatare deemed necessary “to give California the tools to handleelectricity pricing problems.”

The language in the report is particularly strong in regard tostate regulators’ inability to obtain recent pricing statisticsfrom both the Cal-ISO and the Cal-PX.

“The data we need to assess wholesale market pricing and supplyscheduling behavior is in the hands of two private, autonomousentities (Cal-PX and Cal-ISO), and despite the ElectricityOversight Board’s legislative mandate to oversee thoseinstitutions, we have been unable to obtain this data.

“Nevertheless, we believe enough evidence of questionablebehavior exists that the (state) attorney general should conduct aninvestigation into these statewide market practices, coordinatingwith other state agencies, including the CPUC and EOB. Such aninvestigation would provide the factual foundation that Californiapolicymakers and regulators need to recover any illegally obtainedprofits.”

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