Although they have gotten much of the blame, retail rate capsaren’t the reason that California’s power market has spiraled outof control since last summer, a state consumer advocate told aHouse panel yesterday.

“I don’t think the flaw in California was [retail] caps” becauseboth Pennsylvania and Maryland, which have successfullyrestructured their electricity markets, also have had caps at theretail level during the transition period, said Mike Travieso,people’s counsel for the state of Maryland. The flaw has been onthe wholesale market side, he said during a hearing of the HouseEnergy and Air Quality Subcommittee Thursday.

The “central mistake” in California was the divestiture of morethan 18,000 MWs of generation that had been under cost-of-serviceregulation, said Commissioner Carl Wood of the California PublicUtilities Commission (CPUC). State policymakers, when restructuringthe state’s market, should have taken a “more measured approach” inthis area. California recently took action to ban further sales ofin-state generation, he noted, but the damage has already beendone.

Wood laid some of the blame at FERC’s doorstep for notprotecting the state’s customers from “unjust and unreasonable”wholesale rates. He also pointed an accusing finger at powermarketers, a number of which “closed their doors” at the “firstsign of trouble” in the California market.

Subcommittee Chairman Joe Barton (R-TX) called the hearing toglean lessons from the failed restructuring experiment inCalifornia and from the success stories of Pennsylvania, Ohio andMaryland. “This is not a hearing to just jump on California.”

Unlike in California, the chairmen of the Pennsylvania PublicUtilities Commission (PaPUC) and the Ohio Public UtilitiesCommission (PUCO) said competition is thriving in their stateslargely because they have access to more than enough reserves tomeet demand. In fact, PaPUC Chairman John Quain noted his state isa net exporter of power supplies.

In Ohio, PUCO Chairman Alan Schriver reported the state’s sitingboard has approved 6,000 MWs of new generation capacity forconstruction, and has another 8,000 MWs pending. He noted theturnaround time for siting and permitting new generation plants —mostly peaking facilities — was about six months in Ohio,compared to the three or more years it takes in California. Most ofthe new facilities to be built in the state will be gas fired,Schriver said, but Ohio also has its door open to coal-fueledplants.

In addition to adequate reserves, Quain and Travieso believethat restructuring is working in their states because all parties— including consumers — were involved in the negotiations toreshape their power markets. In California, however, there was”very little involvement” of the small and residential customers,Travieso said.

The California power crisis also underscores the need forgreater emphasis on demand-side management, said PUCO’s Schriver.This “desperately needs to be revisited.”

Despite the horror stories from California, Quain said it hasn’tshaken his faith in restructured, competitive electricity markets.”Competition can work…There is simply no substitute for good olecompetition if you get the fundamentals right,” he told Houselawmakers.

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