Indicative of the continuing stalemate on what to do aboutCalifornia’s chronic power market woes, Sempra Energy’s CEO and thechairman of the Federal Energy Regulatory Commission pushed forsharply different actions at an energy executive forum, “PowerCrisis in the West,” hosted by Massachusetts-based Xenergy.

Stephen Baum, head of the parent for San Diego Gas and Electricand Southern California Gas, unequivocally threw his support behindCalifornia taking over the state’s investor-owned transmission gridand forming a state power authority. He also urged FERC to imposewhat he called “targeted” price caps on existing generation plantsthroughout the western states.

Not surprisingly, FERC Chairman Curtis Hebert reiterated hisstrong opposition to price caps and his desire to see Californiasolve its energy crisis with retail rate increases and variousmarket-based solutions.

Hebert rejected the notion that there is a “lurking natural gascrisis” waiting to emerge behind California’s electricity problems,because he said, the market would solve the natural gas pricesituation by returning to more of a balance between supply anddemand. California’s electricity problems, on the other hand, werecaused by a fundamental “market mis-design” that was compounded by”failed execution” of the state’s deregulation plan.

Sempra’s Baum urged energy stakeholders at the one-dayconference in San Diego Monday to stop trying to assign blame andto do something to fix the problem, and he emphasized that he is”in agreement with anything reasonable that will get the job done,”including a greater state role in developing and operatingCalifornia’s energy infrastructure. “The critical thing is that weget this problem fixed — not who does it.”

In the audience was Robert Mitchell, executive vice president atTrans-Elect, a Washington, DC-based venture proposing to own andoperation regional transmission systems on a merchant, for-profitbasis. Mitchell has been spending a lot of time in Californialately as his company has made formal offers to state officials andthree IOUs to buy California’s private sector grid and run it, withone reported collective bid being in the range of $5.2 billion.(Last week Edison International’s CEO John Bryson said Edison’sutility part of the transmission system might be worth $6 billionby itself.)

Baum and Hebert did agree on at least one thing — retail pricecaps in California should be eliminated. Baum said during SanDiego’s wholesale market crisis last summer, elected officialsre-imposed retail caps for SDG&E mostly to “save their ownnecks.”

Among five steps he suggested for mitigating California’sproblems, Baum said power suppliers need assurances they will bepaid, and the best way to do that at this point is to increaseutility rates and securitize the debts

Hebert agreed the suppliers need to be paid and bankruptcy forCalifornia’s two largest investor-owned utilities “must be avoidedat all costs.” However, the costs may be considerably higher thanstate political leaders are now prepared to pay, with rate hikes inthe neighborhood of 100%, not the 10 to 30% talked about in thestate.

The new FERC head remained adamant that a regional westernwholesale price cap was not the answer, and it would only spread toother regions of the U.S. and eventually “engulf the entireindustry.”

Among the other speakers there was a consensus on thepervasiveness and complexity of the state’s energy problems, but noagreement on solutions. The head of the state energy commission,merchant generators and consumer representatives agreed thatserving the so-called extreme “needle peaks” that last forrelatively few hours each year, but spike demand by 4,000-5,000 MW,are not economically solvable with new generation plants. Thus, itwas agreed aggressive demand-side management and conservation areneeded, including the eventual spread of real-time meters.

For this summer, there are only about 1,100 MW of savings thatcan be squeezed out of major state and federal programs, saidWilliam Keese, chairman of the California Energy Commission. Longerterm, however, he said there are “massive opportunities forsavings” in developing and spreading the use of more efficient airconditioning, which accounts for 15,000 MW of California’s summerpeak demand, or about one-third of the total summer peaks.

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