The western wholesale energy markets can use more “yes, buts…” and fewer “hell, nos” if they are ever going to regain investor, regulator and consumer confidence, the head of the Arizona state regulatory commission told a nationally assembled industry teleconference panel.

Cooperation — rather than litigation — should become the resolution measure of choice, according to Mark Spitzer, an attorney and former state legislator now heading the Arizona Corporation Commission.

Spitzer, FERC Commissioner Nora Mead Brownell, APS Energy Services President Vicki Sandler, and Infotility CEO Joe Desmond comprised an audio conference panel considering how to re-develop western energy. The panel was sponsored by Restructuring Today.

There has been economic fallout, particularly in California, because of the uncertainty and depressed status of the wholesale energy markets, some of the panelists said. Each maintained optimism that this could be overcome through more cooperative approaches. Sandler characterized the overall debate as “energy politics versus energy economics,” with too much politics eroding “the efficiencies that markets bring.”

Consumers ultimately will pay the price if state and federal policymakers and industry leaders cannot resolve their differences and move on, Brownell said. “We should not litigate the opportunities to death; that would be a tragedy,” she said. “While none of us may be sitting in these same chairs long enough to pay the consequences in 10-15 years hence, our industries will, our customers will and our economy will.”

Sandler, who heads retail energy company APS Energy Services, said more is needed than simple dialogue. The industry needs the “carrot with the stick with some deadlines” to expedite action. Regulated incentive mechanisms are a necessary tool to make things happen, she said.

“We need to take a long-term view of what we want the western interconnection to look like five, 10 and 15 years from now,” Spitzer responded. “In the short run that means some accommodations have to be made, and the people we are accountable to understand that. What they want is reliable electricity, and reliability will not come from an industry that is paralyzed, or from an industry that has no access to capital, or from an industry that is bankrupt.”

In the long term, the federal and state regulators have to coordinate and cooperate, said Sandler. But some “temporary rules” are needed in the short run to allow firms to survive until all the uncertainty and stigma from the 2000-2001 crisis is worked off.

Noting that the continuation of direct access in California is a “live-or-die” issue for many firms, Desmond, who represented the 180 software firms making up the Silicon Valley Manufacturers Association, said that many of his association’s members have decided to “leave the state of California or simply not expand in facilities in the state because of various uncertainty issues surrounding energy. Obviously, for these firms, energy is a significant cost.

“You won’t hear those firms’ executives come out and say it was the only factor, but certainly energy was a contributing factor for their moves. Many of the relocations took place outside the West because of the uncertainty surrounding energy policy and infrastructure in the state.”

Spitzer urged energy stakeholders to look at the big picture, and not to get “hung up” on jurisdictional issues, such as having Federal Energy Regulatory Commission jurisdiction over bundled transmission rates. He suggested that the industry players move beyond what he called “the hostility and emotions” of the California crisis to restore the confidence of the financial markets and the consumers in the industry.

“We have issues of market manipulation by merchant companies, investor-owned utilities, and public power, so we’ve had problems in the industry,” Spitzer said. “That doesn’t mean we were wrong to move to a market-based system, nor were we wrong in asserting that electricity is a commodity, because I happen to believe it is a commodity. What it means is collectively the system is broken, and collectively we have to fix it.”

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