NGI The Weekly Gas Market Report
To borrow a little from Shakespeare, the Summer of 2000 in SanDiego has been the season of consumers’ extreme discontent.Consumers burn their bills in protest, others just are burning.State officials, led by Gov. Gray Davis, claim profit-hungrynon-utility power plant owners have taken advantage of severesupply shortages to gouge consumers. But what’s the real story?
To that end, federal and state investigations met earlier thismonth to figure out how to ease the pain, so the speak. Are the badguys really the generators, wholesale power marketers andtransmission grid operators? Have they just been wrongly accused?
State officials, lead by Gov. Davis, say the generators aremanipulators who are reaping excessive profits at the expense ofSan Diego Gas & Electric Co.’s 1.2 million electric customers.There is no doubt SDG&E and its suppliers have profited thissummer. But has the profit been excessive?
Public records of the California Independent System Operator(Cal-ISO) and Power Exchange (Cal-PX) show that even in off-peaktimes, such as Sundays, generators have been charging prices fivetimes higher than comparable Sundays a year ago.
On average, state records show considerably fewer megawatts (upto about 700 MW daily) are not bid into the Cal-PX day-of andday-ahead markets. The assumption by critics is that supplies wereintentionally kept off the market to allow Cal-ISO to dip intohigher-priced emergency real-time supplies.
However, generators counter that supplies are tied up inlong-term bilateral or hedging deals. And merchant generators arguethat significantly higher natural gas costs, higher air emissioncredit costs, increased operating and maintenance costs for plantsoperating full time, and hedging and bilateral contracts havedistorted the picture.
However, under a plan adopted by the California Public UtilitiesCommission Aug. 21 and by a follow-up legislative proposal Gov.Davis and San Diego state legislators, ultimately the regulatedutilities are guaranteed to eventually collect the differencebetween the lower capped rates and actual wholesale costs of power.
Before summer ends, SDG&E’s smallest consumers will havereceived more than $500 million in relief in the form of cashrebates or bill credits, not even counting the total value of thecapped rates retroactive to June 1.
Most San Diego customers pay electric bills of $68 monthly fortheir first 500 kWh of use (70% on average each month), or 13.6cents/kW, which is higher than the average cost/kilowatt in all buttwo states (New Hampshire and Hawaii) as of last year. It’s alsohigher than the 11.4 cents/kW rate currently paid by customers ofthe two other major investor-owned utilities in California, whichhad rates frozen at 1996 levels.
By factoring in rebates and credits, the consumer will gain evenmore. An average $400 rebate for a typical residential customerwill buy another six months worth of electricity at the500-kwh/month volume and 13.6 cents/kW rate.
Under the CPUC plan, rates would be capped below market through2001; the governor’s and legislature’s plan would be through 2003,and include a provision for establishing an accelerated process forsiting new power plants. Still, it’s not clear whether any planwill favor consumers’ interests.
“Under the (latest) legislative proposal being pushed by utilitylobbyists in Sacramento, the CPUC would be authorized to setelectric rates at a reasonable level — but the difference betweenthe reasonable rate and the wholesale cost of electricity would beborne by consumers alone, regardless of how high prices go,” saidNettie Hoge, executive director of the statewide utility consumerwatchdog, TURN (The Utility Reform Network).
“First they (utilities) wanted deregulation that assured them ofprofits on their unprofitable investments — insulating them fromthe risks of competition. Now they want legislation that assuresthem that no matter how long prices remain inflated, they cancontinue to reap the high profits they’ve been making underderegulation,” she said.
TURN has accused the state’s three IOUs (SDG&E, Pacific Gas& Electric and Southern California Edison) of “collecting hugeprofits from the crisis in San Diego,” and consider proof to be thecompanies and their holding companies’ second quarter earnings.Merchant generators also saw significant increases in earnings andstock prices so far this year.
However, all of the major companies — generators and utilitiesalike — respond that they don’t just operate in California. Theyhave substantial investments elsewhere, and wholesale electricityprices have skyrocketed across the board.
Consumers in other parts of the country who pay $200-pluselectric bills every summer also question why San Diegans arecomplaining about bills “doubling to $150.”
But it’s not just the monthly bill. California consumer groupscounter that most regions pay rates-per-kilowatt that areconsiderably cheaper, on average, than the typical Californiaelectric bill.
Nationally, only a handful of states average lesselectricity-per-customer than California, which last year used anannual average of 6,670 kWh. Virginia electric customers bycomparison averaged 12,971 kWh; Tennessee power consumers averaged15,253 kWh annually.
California officials and consumers in the short-term want toreduce electric bills. They have done that. Longer term, they wantto get rates below national averages — either throughre-regulation or by tinkering with the state’s current market-basedapproach.
To that end, they have Gov. Davis’ attention. “Electricity isthe pulse of our economy, and as governor, I refuse to stand idlyby and watch profiteering power generators gouge San Diego’sfamilies and businesses,” he said recently.
The governor, a Democrat, also applauded action the same day(Aug. 23) by the Clinton Administration to provide $2.6 million fora low-income home energy assistance program (LIHEAP) to help theneedy pay for rising power bills.
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