Posted on 02/15/2004 3:16:48 PM PST by John Jorsett
Southern California's utility customers, who already pay among the highest rates in the nation for electricity, are now paying companies millions of dollars a month for power they never deliver.
The payments arise from a program created by the state electricity grid's manager to deal with congestion on a key power line leading into San Diego.
As power shipments increase beyond the line's capacity, the grid manager – California's Independent System Operator – triggers a curious auction system.
The ISO asks companies planning to transmit electricity to bid for the right not to do so. When a bid is accepted, the ISO takes the money and then must find another source of power for that company's customers.
Because the bids for nonproduction have fallen short of what the ISO has to pay for replacement power, regional utility customers are paying millions more for power and companies are profiting as a result, according to a watchdog committee within the ISO.
The committee says the system gives companies an incentive to clog power lines and then reap profits for clearing them.
The power companies deny that they've manipulated the market or earned profits from congestion. They say the fundamental problem is the state's cumbersome regulatory process for siting and upgrading electric transmission lines to overcome congestion.
The costs of relieving congestion grew dramatically last year, when electricity from newly built Sempra Energy and InterGen plants in Mexicali helped tip the power line in question, the Southwest Power Link, into chronic overload.
Sempra, the parent company of San Diego Gas & Electric, says that, at best, it breaks even on the payments it receives through the program. The company says there are occasions when it even loses money, though it receives payments for electricity it never generates, procures or delivers.
InterGen declines to discuss how it fares on the congestion management program, but says it tries only to break even.
Both companies deny that they intentionally create congestion for profit.
Consumer advocates doubt those assertions and point to the bottom line: Southern California utility consumers have paid at least $20 million since August as a result of the congestion the ISO attributes largely to the Mexicali generators.
The consumer advocates say these costs demonstrate that California's partly deregulated electricity market is susceptible to the financial manipulation that took place during the power crisis of 2000 and 2001, and that state regulators continue to fail the public.
During the crisis – which cost California's electricity customers at least $40 billion – suppliers insisted that problems were caused by simple shortages. But state and federal regulators later concluded there was massive market rigging by generators and traders. The regulators vowed to close loopholes and provide an honest market for electricity.
'The congestion game' InterGen criticizes the market surveillance committee for focusing on the power exports from Mexico. The company says generators from Arizona push more electricity through the crowded Southwest transmission line and make even lower payments – or even get money from the ISO – for reducing their output to and transferring their customer delivery obligations to the ISO. The ISO says the problem along the border was caused by poor transmission planning. Asked why the ISO subsidizes independent generators that encounter congestion problems by buying replacement energy for them at a loss, Jim Detmers, the ISO's vice president of grid operations, said the rules for dealing with congestion were unclear when new power plants were added along the Southwest Power Link.
"That does need to get resolved," Detmers said. "And any new generation there needs to have transmission sufficiency, and we need to know who is going to pay."
The ISO, the nonprofit public benefit corporation whose board is appointed by the governor, believes that the congestion-related costs will be more reasonable in a few years, when it institutes a new system for apportioning transmission costs.
In the interim, the grid manager says it has addressed the problem by raising the minimum payments from generators ordered to trim production, adding more staff to manage congestion problems and improving the scheduling of power distribution. To boot, SDG&E says upgrades at a key substation by year's end will increase capacity and ease the congestion problem.
Critics of deregulation argue that getting paid for what amounts to nonproduction is an example of what suppliers will do when the electricity market isn't fully regulated. They are also critical of the ISO and regulators for allowing the situation to continue.
"We must immediately stop the ISO from subsidizing the congestion game," said Douglas Heller of the Foundation for Taxpayer and Consumer Rights.
"It's not just that you have this deregulated market failing miserably, but, because fear of the power industry is so strong, the grid administrators don't stand up for consumers."
Heller contends Sempra and Coral recognized that there was an "Enron-style" game they could play when they structured their deals with California.
"These companies should be investigated to find out who in the corporation conceived of these schemes," he said. "At the very least, this should destroy the contracts that have allowed these companies to steal billions from the state."
A spokeswoman for Gov. Arnold Schwarzenegger targeted the contracts as a part of the congestion problem.
"California ratepayers are being overcharged, and the contracts need to be renegotiated," said Ashley Snee, the Schwarzenegger spokeswoman.
Michael Shames, executive director of the Utility Consumers Action Network, called the congestion costs a "wonderful example of how the gamesmanship continues."
Shames said questions should be raised as to whether SDG&E did all it could to expedite an upgrade of the power line.
"Their parent company is milking the system, and SDG&E does not have the incentive to be a vigilant advocate on behalf of its customers," Shames said.
SDG&E says it pressed for upgrades but saw its efforts bog down in the regulatory process. The California Public Utilities Commission is still considering several transmission proposals and says it's streamlining the process for future projects.
The commission, however, says consideration of further power line-upgrading has been delayed.
Here's a hint, you mental defectives: when idiots write the rules, smart people will game them to death EVERY BLOODY TIME. Try putting someone in charge who has had a couple of decades' experience IN the power and power distribution industries. Try incentivising the **smoothing** of supply and the **retention** of distribution options.
Morons.
The CPUC rejected the utility proposal to build a new line to relive that congestion just last year. I see the Schwarzanegger administration has taken a cue from Davis and is blaming the "energy pirates" for his own failures.
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