Pacific Gas and Electric Co. and Southern California Edison Co.received state regulatory approval to extend their participation inthe California Power Exchange’s (Cal-PX’s) expanded block-forwardmarket for electricity, despite some concerns by retail marketersthat the utilities might subject their bundled customers toincreased risks.

Despite being hesitant at first, the California Public UtilitiesCommission unanimously okayed the two utilities’ plan to recoverthe added costs of participating in these markets and to extend thetime period for their participation until the rate freezes for bothutilities are lifted in 2002. The CPUC action means that the twoutilities can take expanded positions in the block-forward marketup one third of their historical minimum hourly loads. For PG&Ethat amounts to about 2,000 MW and for Edison it is within therange of 1,800 to 2,000 MW.

The utilities argued that the block-forward participation allowsthem to lower the risks that bundled customers face from summerprice-spikes.

Earlier this year, an ad hoc alliance of retail marketers thatincludes Enron and AES Corp.’s NewEnergy, among other nonutilitymarketers and energy service providers, filed a protest with theCalifornia Public Utilities Commission arguing that the utilitiesshould be prevented from engaging in “riskier procurementpractices, such as block-forward trading,” along with the stateDepartment of General Services, an energy aggregator for thestate’s largest facilities. The alliance continues to oppose themove by the two utilities, but the state department has limited itsopposition to regulatory process questions.

“We agree that Edison and PG&E should have the flexibilityto participate in the enhanced BFM (block-forward market),” theCPUC resolution stated, noting that the greater flexibility willallow the utilities “to insure against volatile prices, especiallyin the summer months.” With the prospect of the Californiaindependent system operator (Cal-ISO) raising its current cap from$250 to $750/MWh, the block-forward market can give the utilities aneeded extra hedge, the draft resolution said.

Besides the protests and the prospects of greater summer pricespikes, the utilities’ block-forward involvement has beencomplicated by California’s ongoing competitive transition charge(CTC) allowing utilities to recover stranded costs and the CPUC’spost-transition ratemaking proceeding. There are concerns amongregulators and market participants about the utilities’block-forward participation after the rates are opened up to hourlyprice swings, sweeping the market into the more highly volatileprices in the so-called “post-transition” period.

Nevertheless, various consumer advocates supported theutilities’ expanded participation and the Cal-PX reiterated itssupport for the approval of the utilities’ CPUC authorization.Privately, the Cal-PX was lobbying hard for a longer extension ofPG&E’s and Edison’s participation. Cal-PX was surprised thatthe CPUC earlier in the year seemed headed for a more limitedexpansion of the utilities’ involvement since the regulatorspreviously had strongly supported the block-forward market asbeneficial to electric consumers statewide.

“It will be interesting for traders to see the utilities tradeduring the summer months,” said a Cal-PX spokesperson. “Of course,we want them (PG&E and Edison) to continue to tradeindefinitely.” Traders were concerned earlier that a CPUC move tolimit the utilities participation in the block-forward market wouldadversely affect the power prices, the spokesperson said, addingthat the Cal-PX and CPUC are now closer to agreement on the issue.

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