Senators hear legislation to remake California's energy market

SACRAMENTO (AP) - Although it was reworked by a Senate committee Tuesday, a bill to restructure California's electricity market survived opposition from business groups that want a return to deregulation and consumer groups who fear ratepayers will be stuck with the tab. Both sides packed a Senate Energy Committee hearing and spilled out into the hall in a scene reminiscent of the last time the Legislature took a whack at energy policy during the electricity crisis of 2001.

At issue was Assembly Speaker Fabian Nunez's bill to let the state's largest electricity users shop around for power - reviving a key component of California's failed deregulation policy - and force utilities to report their long-term plans for getting electricity.

"Just three years ago, rolling blackouts and price spikes crippled California," Nunez said.

Without a clear framework for electricity markets, "forecasters tell us we could again experience energy shortages by 2006," he said.

But a coalition of independent power producers, business and trade groups and consumer advocates oppose his plan.

While the speaker's plan would let utilities compete with private generators for bids to build power plants, opponents worried it would discourage private companies from investing in new electricity generating facilities.

"It's a blank check for utilities to pass their massive cost overruns on to ratepayers," said Assemblyman Keith Richman, R-Chatsworth.

With Nunez's cooperation, the committee amended the bill to limit how much utilities could recover from ratepayers if the cost to build a new power plant exceeded the bid.

That change quelled some objections, but consumer groups still questioned whether allowing customers to leave utilities for direct access was compatible with requiring utilities do long-term planning for their electricity needs.

The retail competition portion "blows a huge hole in everything else that the bill is trying to do," said Mike Florio, senior attorney for The Utility Reform Network.

During the energy crisis of 2000 and 2001, direct-access providers passed on rising wholesale costs to their customers, who then fled back to utilities, which were already having problems finding power for their customers.

The Legislature later halted direct access when wholesale prices dropped again and customers tried to leave the utilities that had ran up massive debts buying high-priced power but selling it at capped prices.

Until they devise rules to protect utilities and ratepayers, lawmakers have hesitated to reinstate direct access, which is a key part of Gov. Arnold Schwarzenegger's energy vision.

Independent generators and trade associations for industries from beer brewing to home building formed the Partnership for Open and Workable Energy Reform - dubbed POWER - to rally support for the governor's proposal.

That plan was laid out in a three-page letter to Public Utilities Commission President Michael Peevey in April in which Schwarzenegger urged the PUC to finish writing regulations that let utilities sign long-term contracts for electricity - suggesting this could encourage companies to build much-needed power plants.

The governor also said the Legislature should quickly revive direct access for large electricity users.

Schwarzenegger said he would support a plan that required direct access customers that left utility service "should bear full responsibility for their management of electricity price and availability risks."

That would means if the electricity price on the open market goes up, or if the electricity provider goes under, customers couldn't jump back to the utility for regulated and reliable service.

Nunez wants direct-access customers to give five years' notice before leaving or returning to utility service so utilities would have a better idea how much power they'll need in the future. He said he would consider a shorter time frame, as business groups wanted.

The bill was approved 5-2, but Sen. Debra Bowen asked that it return to the committee for review after the amendments are added.

So, what you and the existing producers in California want is price deregulation, but you aren't exactly enthralled about that crash that happens later. So, you speak as if there's nothing to be done about those stupid air quality regulations and wail about all the money you'll have to raise to build new equipment, and we'll just have to let you have your windfall so that new plants can be purchased with cash. Fancy that, as if cash were that important in a time with effectively zero interest rates. You talk about price deregulation and never mention what to do about SUPPLY REGULATION that will hold up that price by keeping out new entrants and slowing new construction while you get that windfall.

Enter your natural allies, the environmental groups! Enter Arnold, Jim Brulte, RFK Jr. and his advisors at Earthjustus. Just shocks the hell out of me.

So in California, a nifty strategy would be to kill the competition by getting into trouble and then stall in court on paying suppliers. Bigger companies have the advantage of being supported by overseas operations. The little guys go out of business and sell off their assets for a song. The big ones can reorganize and, unless I misunderstand, who gets paid, how much, and when, that all depends upon the bankruptcy judge followed by a lengthy appellate process. Then deregulate only prices during a supply shortage and cash in. The cost of environmental regulations and local NIMBY groups such as TURN and RFKJr.'s buds at Earthjustus will attack anyone with the temerity to build a new plant as Mr. Bryson's associates in the NRDC did decades ago when they helped shut down Rancho Seco. Lock in the long-term contracts. Refinance the contracts with bonds from Wall Street banks.

I think I got the connection with your unified field theory of environmental-international business conspiracy.

"(from this article)....independent generators and trade associations for industries from beer brewing to home building formed the Partnership for Open and Workable Energy Reform - dubbed POWER - to rally support for the governor's proposal."

Personally, I feel that wholesale power supply competition could work, if certain steps were meet.

First I don't feel that FERC is correct in having some ancillary services as market requirements, especially those involved with reliability, like spinning reserves and load following services. Nobody will pay for reliability, until they don't have power and then they will offer to pay just about any extreme price. The problem is that those organizations that avoid doing their share of reliability oriented activities will be less competitive in a deregulated market.

Second, there needs to be an adequate supply of generation and transmission, which seems to be the biggest problem and one that government and most deregulation plans don't want to address. The transmission and generation needs to be built for "contingency needs" and not 24/7 needs, which is why the regulators, environmental groups, and courts often block its construction. Economists would call this low barriers to market entry and exit.

Third, historic regulators (state PUCs etc. need to back off--actually part of the justification by FERC for deregulation is that FERC and PUC's can't react quickly enough to balance and direct market forces, so the market should do that. If you look at the amount of money that traditional utilities spend on studies and staff to meet requests from regulators and then at the fees that the regulators charge the utilities for their own operations, that represents a lot of money that could be passed on as savings to utility customers. Also remember that SDG&E (while financially crippled during the energy crisis) didn't go into bankrupcy like PGE, which was still under heavy regulation.

Finally, the "culture" of certain large electric utilities needs to be changed. I know of many large investor owned utilities where staff use to laugh about "promotion by cornary" (i.e. you only got a promotion when someone above you died). Many of those utilities would not implement modern magagement tools. I know of one utility that refused for years to allow certain distribution system drawings to done in CAD, they actually went arround hiring retirees from all kinds of companies as contract employees so they could continue to do hand drafting of drawings. Wasteful management practices need to be cleansed from electric utility burearacies and competition is one way of doing it that regulators have not been able implement. Some utilities because of regulation requirements have adopted some very strange policies where they have gotten rid of critical people in critical areas just so they meet various regulatory imposed benchmarks. Utilities need to take responsibility for having the right people, skills and modern management practices. This means that a lot of union work rules will also need to change, especially those that have been codified into state safety regulations. I was at a major utility meeting last week where a multi-state transmission utility was complaining about Oregon and Washington state safety requirements that prevented the utility from doing live-line transmission work that it regularly does with its own staff in Montana and Idaho. The market force pressure of competition may be one of the best ways of cleansing these kinds inefficiencies.

Sorry, I have ranted too long.

I think I got the connection with your unified field theory of environmental-international business conspiracy.

Not quite. From what you wrote, my guess is that you missed a key point. It isn't "business" at the operations level that is playing here; it's at the interlocking directorate level of the charitable foundations and NGOs that hold large blocks of stock where the machinations occur. Personally, I feel that wholesale power supply competition could work, if certain steps were meet.

We completely agree there too. Still, I do think we need to deregulate supply and incent reduced demand before cutting loose. As I said in my subsequent discussions with Dog Gone, I think that could be done in as little as two years.

Second, there needs to be an adequate supply of generation and transmission, which seems to be the biggest problem and one that government and most deregulation plans don't want to address.

For which there is a very good reason.

If you look at the amount of money that traditional utilities spend on studies and staff to meet requests from regulators and then at the fees that the regulators charge the utilities for their own operations, that represents a lot of money that could be passed on as savings to utility customers.

As it is, they get a direct markup on overhead. I agree, it sucks.

Actually, I agree with all the cultural problems you cite within the industry. I worked for a time for Southern California Edison and saw it first hand.

You have pointed out a very very intense interrelationship of leaders of such organizations. I find that very troubling. (I also find the same money behind MoveOn & other anti-Bush groups to also be troubling and part of the same kind of thing)

Yup, it's the left and the corporate RINOs that are the problem.

Actualy, in the past there had been anti-trust and racketeering laws passed against such concentrations of power in legal and illegal business enterprises.

There still are, to which I would add tax evasion and fraud.

Hopefully, the pendulum will swing so that at some point there will be laws against this kind of "market manipulation" as well.

That's not the way to fix it. The key is to limit the power of government so as to limit its ability to play favorites. The keys to correcting market structure are tort reform and insurance deregulation, without which the ability to foist risk would be wildly distorted in favor of those with the money to play the legal game. Legal hucksterism is the real problem.

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