---------------------- Forwarded by Jeff Dasovich/SFO/EES on 09/06/2000 04:19 
PM ---------------------------


Jeff Dasovich
09/06/2000 03:02 PM
To: Lara Leibman/HOU/EES@EES
cc:  
Subject: Rick's Panel on Wholesale/Retail Market Power Issues

Lara:  I have rather hastily put this list together.  For that I apologize.  
Hope it is helpful.  The things on the list are ones that you've likely 
already considered.  Nevertheless, some of the issues we face in California 
include:

1. POWER PLANTS
The utilities' subs are building power plants; competitors (like Enron) are 
also trying to develop plants to sell power into both wholesale and retail 
markets.
The utilities control the interconnection of plants to the grid. 
The interconnection rules are currently so vague and ambiguous, that the 
utility could quite easily favor its generation sub over competitors.
This would have an effect on prices at both the wholesale and retail level 
(i.e., how do we know we've gotten the best generation deal if the utility 
can favor its subs plants via interconnection?).

2. DISTRIBUTED GENERATION
And the same goes for DG:  in California many are pointing to DG as a viable 
solution to the price spikes.
If the utility loses sales because a customer has installed DG on her 
premises as a hedge against price spikes, the utility will have an incentive 
to thwart interconnection of the DG unit.  (Recall that in many places, 
recovery of distribution costs is derived from kwh sales; and if sales go 
down, so can recovery of the utilities' distribution-related costs).
In addition, if someone attempts to install DG at the grid level (as opposed 
to on-site DG) and sell the DG power in wholesale and retail markets, the 
utility has the ability to frustrate the DG project via interconnection.  
This permits the utility to retain bundled service customers.  Utility 
control of DG Interconnection can also permit the utility to favor its DG 
subs.

3. INTERCONNECTION/VOLTAGE BUY-UP
And the same goes for the retail level---remember how SDG&E used 
interconnection to thwart our deal with South West Marine in San Diego. 
(Obviously, we're not doing these deals any more, but the interconnection 
caused us ultimately to lose the commodity deal, too.)

4. TRADING
PG&E and Sempra have developed significant trading units.  
Now that the utilities have been granted authority to buy outside the PX, the 
trading subs are getting more aggressive and vocal about the opportunity to 
sell the utility power via short and long term power contracts.  
Again, any sort of favoritism could do considerable harm to consumers and 
competition (through the shareholders of the utilities' parent would surely 
profit).

5. DISTRIBUTION
In general, the utilities control over distribution is complete and it's a 
problem (see DG, above, for example).  
Shouldn't state and federal policy makers at least consider doing the 
equivalent of FERC Order 888 (i.e., open access) at the distribution level?  
Right now, distribution is a real black box.

6. RETAIL
In California, the utility effectively controls customer sign-up, switching, 
information, and turn back.  The problems have been significant.

7. MARKET INSTITUTIONS
Finally, a big mistake in California was to replace one monopoly--the 
utility--with another--the PX.  
Because the utility has been forced to buy from the PX, and because the 
market structure in California gives customers no incentive to switch, the 
utility continues to control the overwhelming majority of the load in 
California.  
This gives the utilities monopsony power.  With that power, they can 
influence PX prices.  
Solution:  1) Don't make the PX a monopoly. 2) Create a system that provides 
customers with the incentive to switch.

If you have any questions, or if there's anything else I can do to help, 
don't hesitate.

Best,
Jeff