Contra Costa Times
WALNUT CREEK, Calif._Californians who were hoping to be awakened from an electricity deregulation nightmare were sorely disappointed on Friday when a key federal commission adopted a slate of market reforms that stopped short of offering direct relief for skyrocketing prices.
Declaring it was firmly committed to the idea that electricity should be bought and sold in free markets, the Federal Energy Regulatory Commission said its proposals were designed to fix a bold experiment that was blundered by California policymakers.
“This version of competition was a disaster in its application, no question about it,” said FERC Chairman James J. Hoecker. “California, that pioneering and progressive state, has consequently been chastened.”
The commission refused to institute regionwide price caps sought by Gov. Gray Davis to control astronomical wholesale prices that have rocked the financial stability of multi-billion dollar electric utilities and threaten soon to hit ratepayers’ bank accounts.
It also refused, at least for now, to order refunds to San Diego consumers who watched their electricity bills double and triple last summer. It was the shock experienced by customers of San Diego Gas & Electric last summer that led FERC to investigate California’s electricity market and propose the fixes made final on Friday.
But instead of moving boldly as many Californians had hoped, the commission took moderate measures designed to allow the free market to work.
Davis responded angrily and promised to seek greater state control over the troubled energy system.
“The state cannot be subject to the blackmail of a few greedy privateers working in concert with a handful of Washington bureaucrats,” Davis said.
But Hoecker dismissed requests for stronger regulatory moves that would bring the electricity market closer to pre-1998, regulated conditions as requests from “members of the Flat Earth Society.”
“It’s time to look forward and not backward,” Hoecker said.
The federal commission’s strongest step was removing a requirement that now forces utilities like Pacific Gas & Electric Co. to sell electricity they have under contract or from power plants they own into a commodity exchange. The utilities will now be allowed to use that electricity_about 25,000 megawatts, more than half of what is needed in the state on all but the hottest summer days_to serve their own customers and reduce their need to buy electricity on the open market.
In addition to removing that requirement, the 151-page FERC order:
_ Establishes a temporary “soft” wholesale price cap of $150 per megawatt-hour, which means wholesale bids above that figure will be subject to review by federal regulators and unjustifiable charges will be refunded. The soft cap expires in April.
_ Penalizes utilities if they do not secure 95 percent of their electricity ahead of time, which would reduce their reliance on costly spot market purchases.
_ Abolishes the authority of the 29-member board that today oversees the Independent System Operator, which is the air traffic controller for the power grid over 75 percent of the state. Beginning Jan. 29, the ISO staff will not be accountable to that board, which even board members have acknowledged is ridden with conflicts of interest, until a new board is established.
The reaction from the Golden State was furious.
“Make no mistake: By its unwarranted actions today, FERC itself has substantially raised consumer electricity rates in California,” said Davis, who blamed “pirate” power generating companies and power brokers for gouging consumers.
“This is an inexplicable decision by armchair Washington bureaucrats fixated on economic ideology that has no practical application to the dysfunctional energy market in California and the West,” Davis said. “Instead of acting in the best interests of consumers and businesses, the FERC commissioners have acted as pawns of generators and power sellers whose only interest is to plunder our economy.”
Sen. Dianne Feinstein, calling FERC’s action “unacceptable,” said that if prices do not settle down she will recommend state lawmakers step in to re-regulate the electricity industry.
“Rome is burning, our utilities are close to bankruptcy, Californians are facing major blackouts, and the commission is fiddling,” Feinstein said.
“It is clear to me that FERC is either too timid, too weak or too uninspired to do what is necessary in this crisis, which is to regulate the prices until a stable market can be developed,” Feinstein added.
PG&E officials said they were “extremely disappointed” with FERC’s order, adding that it “leaves California electric customers exposed to price gouging and future electric supply reliability uncertainty.”
Consumer groups agreed.
“Federal regulators have blatantly ignored the failure of electricity deregulation, and they continue to blindly appeal to the unregulated marketplace to control itself,” said Doug Heller, spokesman for the Foundation for Taxpayer and Consumer Rights, a Santa Monica-based organization that has floated the idea of a citizen initiative to re-regulate electricity.
In 1998, California became the first state to plunge fully into the deregulation of electricity by breaking up utilities’ monopolies and creating competition among energy generators.
Supporters said deregulation would lower electricity bills.
But the designers of California’s new electricity system failed to anticipate the underlying problem: no significant new power plants have been built in a decade, and economic growth has increased California’s thirst for electrons. The supply of electricity has grown so tight that the free-market price of electricity is subject to extreme spikes.
Many are suspicious that the tight margin between supply and demand has allowed energy companies to manipulate prices. Others, like Davis and Feinstein, want stricter regulatory controls to be put in place until more power plants are built and prices would be less subject to such volatility. Adding to the problem are flaws that are now obvious. For example, utilities have been discouraged by state regulators from procuring long-term electricity contracts, so the utilities now find they must buy large amounts of electricity the same day it is neededat a time it is most expensive.