APPA Members - Public Power Weekly - California summer demonstrated restructuring ills, Nipper says - November 6, 2000
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California summer demonstrated restructuring ills, Nipper says

Public Power Weekly 11/6/2000

PALM SPRINGS, CALIF.—The problems that hit the California electricity market over the summer have had a significant effect on the debate over electricity restructuring, APPA’s Joe Nipper told a public power audience here Oct. 30. "There’s been a growing recognition that the wholesale market has some problems," said Nipper, APPA’s associate executive director for government relations. He spoke at the opening session of the association’s Customer Connections Workshop.

When San Diego Gas & Electric Co. finished paying off its stranded costs earlier this year, price controls were lifted and customers in San Diego saw their electricity bills skyrocket, Nipper said. Part of the reason for this was a shortage of generation. But another part was that "suppliers figured out very quickly how to game the day-ahead markets," Nipper said. An analysis done by the California Independent System Operator found that sellers with as little as 3% of the generation in the state were able to set the price for the next day, he said.

San Diegans saw their electric bills double and triple, compared to the previous summer’s bills and they were very angry, Nipper noted. State Sen. Steve Peace of San Diego, the main architect of the law that deregulated California’s electricity industry, had aspirations for statewide office, but "may instead soon find himself back in the film business," Nipper said.

Assumptions that were made by state lawmakers, as well as by federal regulators overseeing the transition in California, are now being questioned, Nipper said.

The Federal Energy Regulatory Commission, for example, had allowed utilities and marketers to charge whatever price they wanted for power. FERC permitted market prices on the assumption that the market would be competitive and thus hold prices down—an assumption that must be questioned in light of the summer’s volatile prices, Nipper said.

The Federal Power Act requires electricity rates to be "just and reasonable," yet hardly anyone can be found who thinks this summer’s prices in San Diego were reasonable, he said.

Municipal utilities in California, via the California Municipal Utilities Association, have called on FERC to re-evaluate the use of market-based rates in the state, Nipper said. The municipal utilities also have called for the transformation of Cal-ISO from a private organization to a state-owned one.

As APPA has been saying for some time, the wholesale market is broken and the problems in that market must be fixed before there can be true retail competition, Nipper said.

Efforts toward some level of retail competition are under way in 25 states and in Washington, D.C., Nipper said. As for federal legislation, this Congress has not been able to reach consensus on a big electricity bill, so the debate will continue when the 107th Congress convenes next year. APPA has been working with power marketers, investor-owned utilities and others to build consensus on what a comprehensive bill should look like, he said.

A great deal is at stake in this debate, Nipper told the audience of public power personnel. "There are IOUs and marketers who’d like to take your customers and would just as soon see you go out of business," he said. He reviewed the main issues at stake for public power utilities:

  • access to wholesale power suppliers at fair prices;
  • public power utilities’ continued ability to use tax-exempt bonds;
  • their exemption from federal income taxes;
  • protection against the abuse of market power;
  • continued preferential access to low-cost federal hydro power; and
  • the basic idea behind public power: local control of the electric system.


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