California Governor Proposes Plan to Boost Deregulated Electricity Market

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Contra Costa Times

 SACRAMENTO, Calif.–Gov. Gray Davis offered a slate of modest proposals on Friday to invigorate California’s deregulated electricity market and said the measures would remain “limited” and “transitional” as long as federal authorities crackdown on wholesale power producers.

The governor’s short-term plan, which was outlined in a letter to federal regulators, drew some praise from utility companies and power generators but harsh condemnation from consumer advocates.

Critics said the Davis plan will do little to quell the rising chorus of complaints about electricity prices and the way the state has mishandled the deregulation of the electric utility industry. Now, many said, it is up to federal regulators to make the wholesale power market work and state legislators, who are sworn in on Monday, to come up with other solutions.

“What the governor did today is pass the buck,” said Doug Heller, a spokesman for the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “Our governor seeks to relinquish all responsibility.”

But Steve Maviglio, the governor’s press secretary, defended Davis’s measured approach. He said Davis will announce more proposals after the Federal Energy Regulatory Commission makes a final determination in two weeks about the wholesale market in California.

“The fact of the matter is FERC holds all the cards when it comes to wholesale power prices,” Maviglio said. “We have tried to emphasize this is just the first step in a comprehensive plan. Everything is still on the table.”

One controversial aspect of the governor’s plan is to further reduce caps on the prices the state’s power exchange will allow wholesalers to sell electricity to California distribution companies. Energy producers oppose price caps.

Another is to prevent utility companies from selling their power plants, as required under the terms of deregulation, until the market becomes more competitive. Southern California Edison and the Pacific Gas & Electric Co. still run plants producing 29 percent of the state’s electricity.

The two companies have worked to speed up their entry into the deregulated market since wholesale electricity prices skyrocketed and the costs exceeded what the companies could charge customers. Southern California Edison and PG&E are seeking repayment of $ 6 billion in additional costs that they have said they incurred due to high electricity rates.

The remainder of the governor’s proposals, however, appear to be nothing new or bold. Among them:

— Davis wants private companies and state agencies to reduce power consumption during peak usage.

— Long-term electricity contracts in which utility companies buy power at a fixed rate over a period of years should be expanded.

— Utility companies should explore using meters that tell large energy users the price of the electricity at the precise time they are using it in an effort to discourage use when power is in short supply.

Davis also recommended coordinating the times when power plants can shutdown to do maintenance to prevent several plants from going down at once and dramatically reducing supply. State authorities said that problem contributed to price spikes in mid-November.

Consumer advocates said they are most alarmed by Davis’s insistence that the deregulated electricity market can work. The San Francisco-based The Utility Reform Network called Davis’s plan “a weak rehashing of ideas proposed elsewhere that ignore the urgent need for consumer protection.”

Nettie Hoge, executive director of The Utility Reform Network, said: “Deregulation is a speeding train headed for a wreck, and the governor is acting like a brakeman who rather than pulling the handle is handing us a menu of options of action. Gov. Davis needs to act before the crash, not after.”

On Thursday, Consumers Union became the latest organization to assail California’s experiment in electric deregulation as a failure. The consumer group called on the state to build and operate some power plants to protect ratepayers.

Heller, of the Foundation for Taxpayer and Consumer Rights, said he found little that was encouraging in the governor’s plan. The nonprofit group announced on Tuesday it would pursue an initiative to re-regulate the electric industry if lawmakers fail to take steps to ensure a reasonable supply and price of electricity.

“In it’s best light, it’s simply underwhelming,” Heller said.

Meanwhile, utility companies and energy producers said some of the governor’s measures represented a step in the right direction.

“Gov. Davis understands California’s electric energy crisis comes from a dysfunctional wholesale market,” PG&E said in a prepared statement. “As the governor noted, California’s utilities, if allowed, can play an important role in moderating price volatility and ensuring reliability by expanding their ability to purchase in the forward market.”

Expanding the long-term contracts for purchasing power will help bring prices down, predicted Jan Smutney-Jones, executive director of Independent Energy Producers, a trade association. He said utility companies currently buy between 80 percent and 95 percent of the power they purchase the day before they need to use it.

“The equivalent of this is going to the airport the day before Thanksgiving, wanting to go visit grandma, and wondering where all the cheap airfares went,” Smutney-Jones said. “They are gone. You have to buy them a longer term in advance. That’s what we’re advocating.”

The California Public Utilities Commission has been reluctant to embrace forward contracting, however, out of concern that long-term rates could prove far more costly to consumers, presuming there is plenty of supply and few price spikes.

Loretta Lynch, the president of the PUC, said the state is moving ahead on a number of fronts but remains dependent on what federal regulators do.

“The biggest part of the problem to be addressed is the wholesale market and FERC action to impose a reasonable bid and price cap to ensure what happened last summer doesn’t happen next,” Lynch said.

Consumer Watchdog
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