A U.S. House Commerce Subcommittee set the stage Monday in SanDiego for a continuation of California’s “great electricitydebate,” and the actors all showed up to deliver their linespredictably from the often-conflicting perspectives of consumers,generators, state regulators, energy officials and federalregulators. With two San Diego-based members of the subcommitteeamong the Congressional lawmakers attending, all sides got in theirtwo-cents worth, and are expected to do the same today when theFederal Energy Regulatory Commission holds its hearing on San Diegoelectricity price spikes.

Rep. Brian Bilbray (R-San Diego) indicated that the hearing wasseeking both short- and long-term solutions to what hecharacterized as problems caused by California’s ongoingelectricity restructuring outlined by a 1996 law. (Absent from theroster of speakers Monday was the chief architect of that law,state Sen. Steve Peace, who represents a portion of San DiegoCounty.).

California Public Utilities Commission President Loretta Lynchstressed that the state’s deregulation drive, which she attributesto the previous administration of former Gov. Pete Wilson, is theculprit needing a complete overhaul and some re-regulation. Lynchparaphrased the conclusions of a report she and the head of thestate’s electricity oversight board submitted to current Gov. GrayDavis Aug. 2.

Part of that report’s conclusions, repeated by Lynch, is thatfederal level changes from FERC are needed before California’sproblems can be fully resolved.

“It is FERC — not our (CPUC) commission — which regulatedboth the state’s independent grid operator (Cal-ISO) and wholesalespot market (Cal-PX),” Lynch said. “While California can work atthe retail level to mitigate the retail pricing problems we face,it is now in the hands of federal regulators at the FERC to solvethe problem at the wholesale level.”

Calling its perspective “uniquely objective,” Enron’s StevenKean stressed to the Congressional panel that increased liquidityand transparency are all that is needed to correct the Californiawholesale power market flaws. As the largest buyer and seller ofelectricity in North America, Kean said Enron’s prime interest inCalifornia (as in other power markets) is “to ensure that marketswork effectively.”

Kean said the problems as well as the potential solutions areall straightforward and clear: booming demand with growing supplyconstraints and “very little demand response to rising prices” isthe problem, while new power plants, more consumer hedging and morecompetitive suppliers are the solution.

He stressed that several complementary state and federalgovernmental actions are needed to allow these solutions todevelop, including the state expediting the approval process fornew generating plants and the federal regulators expediting theinterconnection of these new facilities to the grid. In addition,state and federal authorities need to let California utilitiespurchase more power outside the state-chartered power exchange(Cal-PX); information must be more widely available in the marketfrom both the Cal-PX and the Cal-ISO; and FERC must assure thenondiscriminatory availability of transmission in both interstateand intrastate movement of power.

Cal-ISO CEO Terry Winter said Congress should not misreadCalifornia’s problems this summer as an indication that a return tocommand-and-control regulation is the solution.

“The single most significant contribution that this committeeand state decision-makers can make to the restoration of economicorder (in California) is to put an end to uncertainty (by makingit) clear their commitment to a competitive commodity marketfacilitated by a regulated transmission infrastructure,” saidWinter, adding that until the commitment is reiterated he does notthink enough investment will be made to make the state’s powermarket truly competitive.

Winter did not note that the Cal-ISO Board of Governors lastweek decided to ask FERC to extend its price cap authority beyondNov. 15 and that it was extending the current $250/MWh cap onenergy power purchases by the ISO beyond its current Oct. 15expiration date.

Among the merchant generators testifying, Reliant Energy’s JohnStout, vice president of asset commercialization, said he doesn’tthink a solution to California’s “flawed” market requires eitherFERC or Congressional intervention. Stout said California’srestructured electricity structure relies too much on the volatilespot wholesale power market.

Stout said the incumbent utilities should be able to hedge moreand the merchant generators should have a means of “levelized”recovery of their costs over a full calendar year rather than intheir commodity charges for a relative few hours of peak-demandsupplies.

Finally, he told the Congressional panel that allegations of thegenerators driving prices up by withholding supplies, “megawattlaundering” and general price gouging are untrue, citing hedging,long-term bilateral contracts and reliability considerations asreasons Reliant does not bid its full 4,000 MW of California-basedpower into the state’s market.

“We don’t bid every remaining megawatt into the day-ahead(Cal-PX) energy market,” Stout said. “If we do, and a unit breaksand cannot supply its day-ahead schedule, we are exposed tosignificant penalties, often at three to four times the originalrevenue of the unit.”

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