Under the shield of anonymity, an economist for a national think tank and a leader in the California legislature spoke candidly last Friday to the spring general meeting of the Western Power Trading Forum in Ojai, CA, concluding for different reasons that political and economic issues have so far stymied the creation of a broadly supported short-term fix to the state’s electricity woes.

An ultimate solution will most likely include provisions for resuming direct access deals, and therein lies both a potential solution and barrier. Both speakers were highly critical of California’s governor, although the legislator never directly mentioned Gov. Gray Davis’ name. The economist was unabashed in his criticism of California’s elected officials’ collective handling of the electricity mess, noting they have used demagoguery in place of leadership, and alleging that the news media and industry, to an extent, have “let them get away with it.”

Speaking to a roomful of the state’s major generators and marketers, the economist said, “your industry frankly has not handled the politics of this fight very well.” Disagreeing strongly with Davis, he said the state has not “turned the corner” recently, and that the wholesale price spikes were a natural reflection of a competitive market caused “not by manipulation,” but by a series of elements, including natural gas price increases, depleted hydroelectric supplies, weather, emission credit increases and various regulatory requirements.

State legislators are not so much concerned about Davis’ memorandum of understanding (MOU) giving too much to Southern California Edison as they are about finding a way to re-institute direct access as an option for the largest electricity users. That may be difficult since the state’s now consummated 38 long-term power contracts for a few years in the future would preclude any direct access because they will cover essentially 130% of the state’s projected net short needs in those years, according to the legislative leader.

As part of the lawmakers trying to come up with an alternative to the governor’s Edison MOU (so-called “Plan B”), the elected leader said the legislature has three clear goals: (1) repaying the state’s general fund almost $8 billion used to buy power by the state water resources department (DWR) since mid-January, (2) restoring the creditworthiness of the investor-owned utilities, and (3) assuring greater stability and reliability in the energy industry.

This legislator candidly said that the various “loci of power” in the state legislature are not focused on the same ways to reach these short-term goals, nor do they necessarily have a five- or 10-year vision for how they want the state’s energy industry to look and operate longer term. He also pointed to rate and jurisdictional disputes ongoing between DWR and the traditional energy regulator, the California Public Utilities Commission.

The state’s upcoming $12.5 billion bond sale to pay back the general fund and begin to stabilize the private-sector utilities is facing both “good and bad news.” The good signs came from the state’s recently successful $1 billion general obligation bond sale and more recently the state’s ability to get a $5 billion bridge loan through the state Treasurer’s efforts. But the DWR-CPUC ongoing dispute, the legislative leader said, could adversely affect the attraction of the electricity bonds by forcing Edison into bankruptcy if it cannot be resolved. It revolves around who is going to determine when and how the DWR is taken out of its current electricity-buying role.

Ultimately, the alternative now being looked at as a replacement for the Edison MOU with Davis would create for the electric industry similar “core” and “noncore” customer groups, along with a third one called “core-elect.” As with gas, core customers would make up the bulk of the utility’s residential and small business customers who would remain with the utilities; the noncore, those 500 kW and larger loads, would have to buy their own buyer under direct access; and the core-elect, those 20 to 500 Kw, could choose to buy their own or stay with the utility.

This concept, the legislative leaders said, has widespread support, but there are still many barriers to getting it in place fast enough to keep Edison out of bankruptcy court. At the same time, the economist was very pessimistic about the impact of last week’s FERC order, saying it is “perverse,” and it will reduce the ability of other western states to get adequate spot market supplies.

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