The electricity mess

Consensus on a solution to high costs fails to emerge.

(Published November 17, 2000) The struggle by officials in Washington and California to stabilize the state's electricity prices has failed to identify a consensus or to stabilize the politics. In fact, the politics seem as volatile as those electricity prices during the summer, when market prices for power jumped many multiples beyond the upticks of the thermometer, prices that directly affected consumers bills in some corners of the state (San Diego), but not others.

This doesn't bode well for next summer, when a repeat performance looms and millions more will see higher bills unless calmer heads prevail. To the average citizen, the language of this policy debate, and its fights over the roles of bodies such as the PX, ISO and FERC, may seem like pure Greek. Perhaps the easiest way to understand what's going on is to better understand the struggle over political power rather than the kind of power that flows inside electricity lines.

Gov. Gray Davis desperately wants the federal government (FERC, the Federal Regulatory Commission) to bail him out of perhaps the greatest threat to his political future -- skyrocketing electricity bills up and down the state. He wants FERC to take away a lot of the money those power generators made last summer and give it back to the consumers who were truly gouged in San Diego and elsewhere.

FERC says it doesn't have the clear legal power to do so. This sets up a future finger-pointing scenario of Davis making Washington the bad guy for California's electricity prices. FERC, meanwhile, is taking moves to strip some political power that Sacramento has coveted, the power to say who sits on the key governing bodies that oversee the state's electricity market (the PX, or Power Exchange) and the state managers of the grid (the ISO, or Independent System Operator).

Sacramento created large governing bodies with representatives from consumer groups, utilities and power plant owners. And state lawmakers thought they had retained the power to alter these institutions if they weren't functioning as envisioned. The lawmakers apparently thought wrong. Once the state gets out of the business of regulating electricity, the political power doesn't simply go away. It reverts back to Washington.

And Washington thinks that smaller governing boards that don't include representatives of every last constituent would make for better governing. The feds are sketching a solution that would keep this electricity market alive, yet breathing under new and stricter rules. For example, FERC would set new, lower caps on market prices. And generating companies would have to sell most of their power in advance, not during the crucial afternoon hours of a sizzling summer day, when grid operators will pay just about anything to prevent a blackout.

It was envisioned that generators would sell virtually all their power in advance, leaving a small percentage for grid operators to buy during a heatwave. What has happened is that power plants have kept up to 30% of their juice off the market during the summer until the day of a near crisis, causing a panic-like run-up on prices.

California's confidence in Washington's solutions, however, is low. Consumer groups think the ceiling is too high, the loopholes too many. Power generators object to any ceiling at all, saying it will discourage the construction of more power plants that could help drive down a true market price. Utilities are generally somewhere between these two extremes. As a result, political power games are clouding policy-making to the point of exasperation and confusion. If it's not straightened out soon, consumers will pay and so, we suspect, will all the game-players.

http://www.fresnobee.com/opinion/story/0,1733,213820,00.html

-- Martin Thompson (mthom1927@aol.com), November 17, 2000