California power crisis worries industry Electric deregulation, competition may be in danger, officials warn

08/30/2000

By Terry Maxon / The Dallas Morning News

CHICAGO  The real victim of this summer's electricity crisis in California may be deregulation and competition in the electricity business, industry officials warned Tuesday.

The publicity about California's problems  soaring bills for San Diego customers, high wholesale prices and electricity shortages  will be difficult for politicians to ignore, prompting them to look for quick fixes, officials said.

"The real question is whether San Diego will be the poster child for failed deregulation," said former U.S. Rep. Phil Sharp, D-Ind., "or whether it's going to be the focus child for us to get off our butts and make the markets work."

Mr. Sharp, former chairman of a House energy and power subcommittee, is a lecturer at the Kennedy School of Government at Harvard University.

The solutions offered Tuesday at a conference hosted by the Electric Power Supply Association focused on the shortcomings of the monopoly era that have to be eliminated or adjusted as states such as Texas open up their electricity markets to retail competition.

The speakers and the audience were heavily weighted toward those with an interest in opening up electricity markets, including firms that build generators, finance power projects or otherwise depend on the electricity industry.

But several speakers cautioned that when the free market and politics collide, it's foolish to ignore politics.

Commissioner Bill Massey of the Federal Energy Regulatory Commission said the panel supports the efforts by states to open up their electricity markets, but the commission "cannot be tone-deaf" to the criticisms of the way deregulation is working in states like California and New York.

"The alarm has been raised on my watch and I'm taking it very seriously," Mr. Massey said.

Possible fallout

He said this summer's problems may have killed deregulation efforts in Iowa and Arkansas and may delay the implementation of deregulation for several years.

"There is a crisis of confidence in the electricity markets that demands our immediate and urgent attention. We must search for solutions to continue the march to competition markets," he said.

"In many regions, consumers do not believe that competition is producing benefits for them. They don't see it. They believe that there are price gouging, collusion and other sorts of nefarious activities by market participants," Mr. Massey said.

Wholesale electricity prices jumped spectacularly at times in California, New York and other areas this summer. Speakers said the price spikes point to the need to change the way that electricity is auctioned through power pools, which match the buyers of electricity like utility companies to sellers like generating companies.

In many pools, the highest price offered by an electricity seller is set as the price for every seller. For example, if one company offers to sell electricity at $30 a megawatt hour, another offers it at $70 and a third offers it at $150, all the electricity sold during that time period would go at $150.

Mr. Massey indicated that the federal government will get much more aggressive at policing abuses in the wholesale markets. He also said he wants to force electricity providers to join regional groups that cooperate on selling and transmitting power.

Supply and demand

Other speakers said the problem with California and other states that have agreed to deregulate the traditionally monopoly business of power is that the process isn't complete.

In California's case, the state lacks adequate supply because few power plants have been built in recent years and because that region lacks sufficient transmission wires to distribute power efficiently, officials said. That same problem is plaguing other areas of the country.

Texas lawmakers have ordered that retail markets be opened up to competition on Jan. 1, 2002, with a pilot program to begin June 1. The Public Utility Commission has been busily adopting a series of rules to implement the new competition.

The problems in California have worried Texas officials, who have questioned whether the same problems could arise in Texas when competition hits the retail markets.

Last week, an oversight committee of the Texas Legislature was told by Texas regulators that Texas won't face the same problems as California because a large number of power plants are being added in Texas. In California, tough review standards and opposition have discouraged or slowed the addition of new capacity.

Some solutions

At Tuesday's meeting, most speakers agreed on some common solutions to the problems suffered by California and others: States need to encourage construction of more power plants; the federal government may need to take the lead in forcing construction of transmission lines; regulators need to prevent abuses of the power-bidding system; and rules must be made to encourage companies to enter the retail markets, not discourage them.

Offering a big "I told you so" was Mark Cooper, spokesman for the Consumer Federation of America, who had warned four years ago that the deregulation process was flawed.

The process allows too much concentration of market power, too many cases where companies can manipulate prices and artificially constrain competition, he said.

"If we judge the performance of markets by their ability to provide consumers with high-quality products at reasonable and stable prices, restructuring of the electrical utility market is failing from coast to coast and in between," Mr. Cooper said.

http://dallasnews.com/business/158976_power_30bus.AR.html

-- Martin Thompson (mthom1927@aol.com), August 30, 2000

Answers

L A Dept. of Water and Power (LADWP) has 5000Mw of excess capacity it has been selling to rest of state. Maybe every business should move into LADWP service area. (Seems like most have already when you drive the notsofreeways).

-PHO

-- PHO (owennos@bigfoot.com), August 31, 2000.