SDG&E, Cal-ISO Ask FERC to Take Over LCG, Oct. 23, 2000--San Diego Gas & Electric Co. and the California Independent System Operators both called upon the Federal Energy Regulatory Commission on Friday to "do something" about state electric industry deregulation they feel has gone awry.

SDG&E said it was bewildered by the high price of electricity now that the weather has cooled off. The utility had thought the entire problem of high prices had been caused by air-conditioners and has not yet accepted the idea that computers and their manufacturers use electricity too.

"Despite the cooler weather and lower statewide demand we recently have been experiencing, the high wholesale electric prices our customers endured this summer are not subsiding," said Edwin A. Guiles, chairman of SDG&E. "We need federal regulators to take swift and immediate action in addressing the fundamental structural defects in California's deregulated marketplace that have contributed to electricity prices that we believe are neither just nor reasonable."

The utility filed with FERC a list of 17 things it thinks will set matters straight and asked the federal agency to take over responsibility for the California electricity market, capping wholesale power prices at $100 per megawatt-hour until that market becomes "workably competitive."

Cal-ISO also wants FERC to cap the wholesale price of electricity at $100, but would exempt generators who can prove they would lose money at that rate, small power plants of less than 50 megawatts capacity, plants producing power from renewable sources, new power plants, out-of-state generators, and generators that contract at least 70 percent of their power to serve California customers.

That sounds like everybody would be exempt, but they would be subject to the existing -- and equally artificial -- $250 cap on wholesale power.

Terry Winter, chief executive of the ISO, said "Because of the visibility of the ISO's markets -- the fact that we are so public -- and as a result of the distortion of the intended market design, the ISO has been called upon to take on responsibilities it was never intended to handle. This proposal would take the ISO back to its original mission of operating the markets of last resort, allowing ISO operators to focus on maintaining reliability of the power grid."

The obvious solution to California's power problem lies in the development of more power plants and more transmission facilities. Historically, investments in power plants by regulated utilities were made with the expectation that they would be paid out in 40 years, the expected life of a power plant. Because the utility had a monopoly, it could pretty well depend on its customers buying power from a new plant for 40 years.

That won't wash in a competitive market. A private investor wants to get his money back in five or 10 years. That means he has to be able to charge what the market will bear for power, and not suffer under an artificial price lid. When enough power plants are built, the investor might see $25 per megawatt-hour most of the time, so he will need to get $1,000 during a heat wave.

http://www.energyonline.com/Restructuring/news_reports/news/1023ca.html

-- Martin Thompson (mthom1927@aol.com), October 23, 2000