From The Business Journal

Federal inquiry could zap San Jose power bills Tom Anderson Staff Writer San Diego's power problems have sparked a closer look by the federal government into the state's wholesale energy market.

The Federal Energy Regulatory Commission inquiry will target not only Southern California, but the Bay Area as well. The investigation could lead to lower utility bills across the state.

The commission launched a formal probe Aug. 23, the same day President Clinton promised $2.6 million in emergency funds to assist low-income Southern Californians with their electricity bills.

The California Independent Systems Operator and the California Power Exchange will be at the center of the investigation, said Pat Alexander, an electricity policy adviser for the Federal Energy Regulatory Commission.

The Independent Systems Operator operates 75 percent of California's power lines once under the control of the state's three large investor-owned utilities--Pacific Gas and Electric Co., San Diego Gas and Electric Co. and Southern California Edison.

The Power Exchange is the electricity marketplace that utilities tap when they require more energy than their generation facilities can provide.

San Diego Gas and Electric filed a complaint with Federal Energy Regulatory Commission against the Power Exchange and the Independent Systems Operator Aug. 23, claiming the PX and ISO have kept energy prices in California high. The San Diego utility's complaint has prompted the commission to investigate the entire market, including Silicon Valley.

It takes more than 1,800 megawatts to keep Silicon Valley humming at peak times, said Bill Highlander, a spokesman for San Jose-based energy producer Calpine Corp.

The valley brings more than 80 percent of that power from other areas, Mr. Highlander said.

"The PX is our power brokerage. We buy on an hourly or longer-term basis determined by various factors, such as the time of year, weather and consumption trends," said Ron Lowe, a spokesman for PG&E, the utility company that serves Silicon Valley. "However, the California Public Utilities Commission gave us permission last month to look elsewhere if we need to."

The Regulatory Commission could change the way energy rates are calculated in the PX to lower overall costs for utility companies, which in turn would pass along savings to its customers, Ms. Alexander said.

The commission could also demand a forward-looking refund to cover all transactions the PX has made with utility companies since the investigation began.

"We have high demand and low supply and there's nothing FERC can do to correct that," said Beth Pendexter, a Power Exchange spokeswoman. "There are so many problems with the California energy market--lack of generation facilities, high natural gas prices and hot weather--that play into the high price of electricity."

Hearings addressing the problems with the Power Exchange and Independent Systems Operator will be held before November after the FERC investigation has concluded, Ms. Alexander said. Out of those proceedings, FERC will order either changing the rates of the PX or refunds to utility companies.

PG&E is the last of the state's three big privately owned utilities to switch to market-based pricing, scheduled to take place on or before March 31, 2002.

Customers of San Diego Gas and Electric, a unit of Sempra Energy, have been paying market-based prices since 1998.

They were paying up to three times as much for power this summer compared with 1999, before state regulators capped bills at $68 a month for users of 500 kilowatts or less. The cap is effective until Jan. 31, 2001.

Ms. Alexander said it is too soon to determine how any action FERC takes will affect deregulation.

In addition to the California investigation, the commission denied San Diego Gas and Electric's demand for a $250 per megawatt-hour price cap on all energy sellers in the state.

Mr. Highlander views California energy woes as a simple case of supply and demand.

"There hasn't been a new power plant built in the Bay Area since 1972," he said. "In the early 1990s, utility companies did not build any generators because they were waiting to see how the deregulation debate would affect them."

Utility companies had to sell off much of their power generation facilities to comply with deregulation laws passed in 1998. PG&E followed suit, but still owns several hydroelectric properties in California and the nuclear-powered Diablo Canyon facility.

Ideally under deregulation, utilities were to supposed to narrow their focus to distributing energy efficiently. The companies then would buy power from a competitive market of providers. The savings generated from efficiency gains were to go to consumers in the form of lower prices.

http://www.bizjournals.com/sanjose/stories/2000/09/04/story2.html

-- Martin Thompson (mthom1927@aol.com), September 04, 2000