California Capsule: 'Customer Choice' Could Sandbag State's Power Purchase Program

LCG, June 26, 2001—Freedom to switch sources of electric supply, one of the big motivators behind electric deregulation in California and elsewhere, could raise financial hob with the state's program of long-term power purchases, state officials say.

And the California Public Utilities Commission is prepared to do something about it – the commission is expected to vote Thursday in favor of suspending "direct access," the device that allows householders to switch to green power and also allows large industrial and commercial customers to cut their own deals with the operators of conventional power plants.

Legislation pending in the state legislature would require customers to pay hefty "exit fees" if they want to change sources of electric supply.

At risk is the state's planned $13.4 billion bond issue to provide funds for the California Department of Water Resources to purchase power on behalf of cash-strapped utilities.

"If such customers are permitted to exit the system without (paying) their share of costs incurred by DWR…, the burden of covering debt service (on the bonds) will fall on a smaller base of remaining customers, significantly and unfairly increasing their power rates," said a June 12 memo from Treasurer Phil Angelides to the CPUC and the legislature.

Angelides noted that, as increasing rates put pressure on remaining customers, they too would have added incentive to switch power sources.

There is the question of to whom the customers would switch. At its peak, customer choice saw about 200,000 customers of all classes purchasing power from alternative suppliers. But that number had shrunk by last month to around 88,000, according to the California Energy Commission. And 78,000 of those were residential customers who were enamored of green power.

Earlier this year, some 13 percent of industrial customers had direct access contracts, but as wholesale power costs soared out of control, energy providers abandoned many of those customers and shunted them back to their utilities – Pacific Gas & Electric Co., Southern California Edison Co. and San Diego Gas & Electric Co.

One energy provider, AES New Energy, still has between 60 and 70 direct access customers, down from a high of perhaps 200. The company does not want to see the option killed. "Direct access is at the heart of the concept of competition and choice," said Aaron Thomas, its government relations manager. "It is not necessary to put a stake in the heart of direct access to float a bond."

But Rick Counihan, a spokesman for Green Mountain Energy which sells renewable power in the service territories of SoCal Ed. and SDG&E, said "Unless we see a legislative solution, direct access is dead. We're being driven out of California." That drive has been reduced to a putt – Green Mountain is down to about 7,000 customers from a high of 60,000.

Refund Talks Begin in Washington Representatives of nearly 60 participants in the Western power market, including utilities, power producers and marketers, state officials and the lawyers of all of them, gathered yesterday for two weeks of negotiations over refunds California says it is entitled to for alleged overcharges by power plant owners.

More than 200 people met behind closed doors for seven hours yesterday in the first of the hearings conducted by Federal Energy Regulatory Commission Administrative Law Judge Curtis Wagner.

California Gov. Gray Davis told a Senate committee last week that the state had been overcharged $9 billion for wholesale power during the past year, and now officials of Western states say they are going to seek up to $15 billion.

"We are confident $8.9 billion is the floor and the most conservative number," California Independent System Operator Chairman Michael Kahn told reporters in a telephone news conference after Monday's meeting.

Judge Wagner, who had earlier expressed doubt that the damage was as great as Davis claimed, noted yesterday "This issue includes the enormous number of dollars in wholesale power that have been purchased for PG&E Corp, SoCal Edison and the Department of Water Resources, for which the generators have not been paid. Allegations put this in the billions of dollars," according to Reuters news service.

"On the other hand, the state of California alleges that its distribution companies and the DWR have been overcharged $9 billion. The amounts involved must be, both ways, resolved at the outset to put everyone on the same playing field," the judge said.

Judge Wagner said that in addition to the subject of refunds, which may be easily understood but difficult to resolve, there were six other issues which must be considered and agreed to.

How much additional power generation for sale should be moved from the spot market to longer-term contracts.

Resolution of the credit worthiness of power buyers.

The independence of the California Independent System Operator board, possibly including a reorganization of the state grid operator.

Issues concerning intrastate and interstate natural gas transportation and the constraints in Southern California.

The question of whether the settlement should offer immunity from existing and future lawsuits and prosecutions against the generators.

The issue of the Pacific Gas & Electric bankruptcy.

Judge Wagner cautioned that the list was not "all-inclusive" in any way, adding "I put them on the table, as essential questions to be answered if settlement is to be achieved."

http://www.energyonline.com/news/articles/f26-1ca.asp

-- Martin Thompson (mthom1927@aol.com), June 26, 2001

Answers

It's this choice of power stuff that has wrecked California more than anything else. With all this green power demand, it's all nonsense. You can't transport electricity from long distances with any effeciency. Too much is lost along the way.

Pipedreams! Pie in the sky! Idealism! Whatever you want to call it, it's impracticality that is the big villian in this energy nightmare scenario, more than any other single thing.

-- Wellesley (wellesley@aol.com), June 26, 2001.

Isn't that why Southern California gets so much power from coal-fired plants just across the border, in Arizona, because it doesn't have to travel very far?

-- QMan (qman@c-zone.net), June 26, 2001.