Showing a carrot, but keeping a “stick” in reserve, CaliforniaGov. Gray Davis Friday outlined for federal regulators steps hewill pursue to fix the state’s ailing wholesale electricity market,stopping short of proposing a state takeover, but hinting he willgo further if federal measures fall short.

Davis outlined California’s proposals in a six-page letter to FERCChairman James Hoecker that was released to news media. Nothing newwas included that the governor and other Californians had not alreadysuggested to the Federal Energy Regulatory Commission during itspublic hearings in San Diego and Washington, DC, this fall (see DailyGPI, Nov. 15).

Among his requests, Davis asks FERC to impose “bid caps in the$100/MW range on a transitional basis” over the next three years.

If Hoecker and his colleagues do not order refunds of the spikedprices from last summer and take steps to protect against similarspikes next year with price caps, the governor hinted he wouldfollow the lead of some elected, regulatory and consumer officialsin the state and move to establish a state government-run powersystem. The governor’s action came as in-state and nationalconsumer groups were calling for re-regulation because of spikingprices and brown-outs.

The strict clamp-down on energy companies, proposed by theDemcratic governor, was backed by the U.S. Energy Department inWashington, which proposed a tougher wholesale bid cap, rather thanthe soft cap proposed by FERC, and extending the cap throughout theWest.

The Federal Trade Commission, however, basically backed FERC’sapproach, adding the Commission should provide more concrete adviceon how best to configure the organization that will operate andcontrol the transmission grid in the state. In its comments filedlast week, the FTC said FERC should consider creating a benchmarkor a baseline of characteristics and operations for regionaltransmission organizations that can be used as a starting point aspart of its revisions to California’s wholesale electric powermarket rules and institutions. In addition, the comments suggestrefinements to FERC’s proposed remedies to ensure that market poweris not exercised in wholesale electric power markets, to thedetriment of consumers.

Among the California governor’s proposed measures are: (a)revising the oversight boards for the state’s grid operator(Cal-ISO) and wholesale spot market (Cal-PX), specifically callingfor eliminating stakeholder board members who he said have”inherent conflicts of interest”; (b) expanding current laws andother efforts to enhance the siting of new generating plants,demand-side management programs, and utility forward contractingfor power supplies; (c) reviewing new approaches to power plantmaintenance and operation to avoid problems that create in-statepower shortages, (d) requiring utilities to retain their existinggeneration plants (hydro-electric and nuclear); and (e) providingmore “real-time price signals” to large energy users to reducetheir energy use.

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