NGI The Weekly Gas Market Report
California regulators ended a busy week Friday, holding another public hearing in San Diego as part of their ongoing investigation of the causes for high summer wholesale electricity prices, zeroing in on the state power market’s structure, rules and suppliers.
This immediately followed earlier actions by the California Public Utilities Commission last Thursday to expand rate stabilization to San Diego Gas and Electric customers, following the governor’s signing two new power laws on Wednesday.
Part of the CPUC’s action Thursday expanded its investigation to cover a state legislative resolution calling for the creation of “options correcting the (state’s) electricity market, methods to eliminate retail price volatility and methods of cost recovery and cost allocation (for utilities).”
Mirroring some Congressional and Federal Energy Regulatory hearings that will be held today and tomorrow in San Diego respectively, the CPUC session sought to collect input to a long list of questions all trying to find out specifically where the market is broken, how and who can fix it, and how much real market power and abuse has been exerted by participants, particularly about a half-dozen merchant generators.
Once again, the merchant generators were not asked to testify, but representatives from various state organizations did speak, including the CPUC, the independent grid operator (Cal-ISO), the wholesale power exchange (Cal-PX), and the market surveillance committees for the ISO and PX.
“We’re just down here (in San Diego) observing,” said one Texas-based generator. The Texas contingent, including Reliant Energy, Dynegy and Enron, will get a chance to testify at the U. S. House Commerce Committee hearing today.
All of California’s major state officials have indicated that now that short-term rate relief measures have been adopted, it is time to complete the state’s investigation of the market and develop some longer-term solutions before next summer when even tighter electricity supplies are expected here.
Separate but closely linked California legislative proposals to provide consumer electricity rate relief and accelerated power plant siting/energy efficiency programs were signed into law Wednesday by Gov. Gray Davis. (See NGI, Sept. 4)
The governor did not act on a third electricity bill addressing utility company revenue shortfalls from the rate capping measure, and a spokesperson in his press office said he has until Sept. 30 to make up his mind whether to sign, veto or let the measure die by inaction. The still undecided measure would use $150 million in taxpayer dollars to help make whole SDG&E, which has labeled the rate relief legislation as “well-intended, but badly flawed” because of the unresolved issue of who pays for capping rates at below-wholesale market levels.
The new state law (AB 265) reduces residential electricity in San Diego to an average of $68 monthly, and small businesses to $220, with a retail price cap ceiling of 6.5 cents/kwh. The CPUC unanimously put the broader relief in effect the following day, retroactive to June 1, 2000, for an initial period through 2002, with a provision that the regulators can extend it another year after that.
The second measure (AB 970) signed by Gov. Davis establishes a six-month, expedited siting process for new power plants in an effort to address California’s growing shortage of adequate power supplies during heat wave-induced peak-demand periods.
Davis said the legislation was set up as “urgency measures,” becoming effective with the governor’s signature, and he used that fact to stress that the rate relief for San Diego is “finally on the way,” although regulator-directed relief in the form of refund checks actually began arriving in early August, averaging $290 for each residential customer and $760 for small businesses.
The governor’s announcement noted the need for new power plants is one of the major steps California must take to begin cutting the run-up in wholesale electricity prices that have stayed almost double what they averaged a year earlier-even in nonpeak-demand periods.
“Restriction and red tape have presented a powerful disincentive to those who would build more power generators in California,” the governor said. “This (new law) will benefit consumers by increasing supply to meet growing demand. It will also establish new programs to reduce demand.”
As part of the siting law, an extra $50 million of state funds will be allocated to demand-side management programs to help reduce peak electricity demand levels.
In the past two weeks, while the state legislature and governor were enacting legislation to establish a six-month approval process to counteract the current “one-year” procedure that often runs into years, separate California Energy Commission (CEC) siting committees recommended an okay on a major upgrade at Duke Energy’s Moss Landing Plant, only to reject moving ahead with an 18-month-old joint venture proposal by Occidental Petroleum and Sempra Energy near Elk Hills until additional public hearings are held on the proposed plant’s water supplies.
The new siting law will not affect either of the above-referenced projects, and by the CEC’s own estimates, only about 1,400 to 1,700 MW of new plants may be eligible for the six-month expedited process. About 1,100 MW are tied up in two projects now before the commission: Mountain View, a 1,031 MW plant proposed last February for San Bernardino County east of Los Angeles by Massachusetts-based Thermo Ecotek, and a small 99 MW unit in Hanford in the central San Joaquin Valley agricultural heartland of the state.
“There are an additional three power plant applicants who are not currently in the licensing process who may apply for the six-month expedited licensing process in the near future,” said a CEC spokesperson. “The (new law) encourages proposed power plants to be designed so they do not conflict with environmental regulations and the electricity system, encouraging them to be compatible with existing resource permitting processes.”
In the CEC siting committee report for the proposed 500 MW Elk Hills plant, recommending against its approval at this time, the regulators noted the “problematic issue” is the water to be used to cool the natural gas-fired plant. A hearing on the issue has been scheduled for this Thursday (Sept. 14) in Sacramento. Apparently the proposed water to be used at the plant could be “potable,” and there are state environmental quality laws that prohibit such water supplies being used for the power plant. At the same time, another CEC siting committee recommended that Duke be given the go-ahead on its $500 million plans to reconfigure its 50-year-old Moss Landing power plant so it takes up less land but generates more overall power, up to 1,060 MW additional capacity. Duke originally applied for state certification in May last year, looking to boost the eventual total capacity to 2,590 MW.
Richard Nemec, Los Angeles
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