USA: US FERC probe finds no Calif. market abuse by utilities.
Reuters English News Service, 11/01/00

US FERC To Order Sweeping Changes For Calif Pwr Market
Dow Jones Energy Service, 11/01/00

U.S. to Decide Action on State Energy Crisis Utilities: Regulators today will 
release plans for tackling electricity costs. Potential solutions include 
price caps, moves to foster competition.
Los Angeles Times, 11/01/00


USA: US FERC probe finds no Calif. market abuse by utilities.

11/01/2000
Reuters English News Service
(C) Reuters Limited 2000.

WASHINGTON, Nov 1 (Reuters) - The Federal Energy Regulatory Commission on 
Wednesday said in a report that California utilities were not necessarily to 
blame for last summer's price rises, which led to an unravelling of the 
state's move to deregulate retail power markets. 
A FERC staff investigation, which was to be released in full later on 
Wednesday, found California's market structure and rules "flawed," which 
combined with tight supplies caused the price of electricity to rise to 
record highs in both wholesale and retail markets.
FERC has proposed rule changes to fix the operations of the California 
Independent System Operator (ISO) and Power Exchange (PX). The draft changes 
would eliminate the need for Pacific Gas and Electric, San Diego Gas and 
Electric and SoCal Edison from having to sell into or buy from the power 
exchange. 
Other highlights from the proposal include establihshing an independent, 
non-stakeholder to oversee the ISO and PX; modifying the auction market; new 
reporting requirements; and accelerating new siting of power generation 
facilities and eliminating some environmental impediments to new plants. 
If approved by the full commission at its Wednesday meeting, the changes 
would become effective in 60 days. California regulators and industry 
officials have until Nov. 22 to comment on FERC's proposed changes.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 

US FERC To Order Sweeping Changes For Calif Pwr Market

11/01/2000
Dow Jones Energy Service
(Copyright (c) 2000, Dow Jones & Company, Inc.)

WASHINGTON -(Dow Jones)- The U.S. Federal Energy Regulatory Commission 
Wednesday proposed sweeping structural changes for California's 
problem-plague power market. 
The commission proposed the changes in response to a staff investigation 
report, unveiled Wednesday, which found no "smoking gun" evidence that power 
sellers in the state had manipulated market prices to financial benefit.
Instead, FERC blamed the state's mandated market structure for the 
electricity supply shortages and spiking wholesale power prices passed on to 
retail customers in San Diego. 
At the same time, utilities elsewhere in the state hemorrhaged hundreds of 
millions of dollars due to a state-mandated rate freeze that required them to 
sell power at below cost.

Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved. 

Business; Financial Desk
U.S. to Decide Action on State Energy Crisis Utilities: Regulators today will 
release plans for tackling electricity costs. Potential solutions include 
price caps, moves to foster competition.
CHRIS KRAUL
TIMES STAFF WRITER

11/01/2000
Los Angeles Times
Home Edition
C-1
Copyright 2000 / The Times Mirror Company

The fate of California's rocky experiment in electricity deregulation hangs 
in the balance today as federal regulators meet to decide whether to 
intercede in the state's dysfunctional $23-billion energy market or to let 
free-market forces continue to wreak havoc. 
The four-member Federal Energy Regulatory Commission will release a 
long-awaited staff report analyzing the root causes of California's energy 
crisis and, more important, issue a draft order or action plan on how to 
solve the problems of runaway wholesale electricity costs.
During public hearings in San Diego in September, FERC Chairman James J. 
Hoecker promised that the commission would take action and "do whatever it 
takes" to repair California's electricity market, whose deregulation was set 
in motion by landmark state legislation in September 1996. 
Just what the report and order will say remained a matter of intense 
speculation on the eve of their release. The FERC commissioners could impose 
new price caps or order an overhaul of the California Power Exchange and the 
Independent System Operator, the state agencies that conduct daily auctions 
for electricity. The commissioners may ask the state to undertake new 
initiatives to foster more competition in a retail power market still 
dominated by the three big investor-owned utilities. 
But an indictment of power generation companies--which some in the state 
accuse of "gaming," or manipulating the system to wield unfair "market power" 
and wringing excessive profits from customers--is unlikely, according to 
published reports and state industry principals and government officials. 
The FERC commissioners are said to blame market deficiencies and defects in 
California for a supply-demand imbalance that sent wholesale electricity 
prices skyrocketing in July to an average of 12.9 cents a kilowatt-hour, more 
than triple the July 1999 average of 3.9 cents. A typical residential 
customer of San Diego Gas & Electric, the first state utility to fully 
deregulate, saw his or her bills triple before state legislators stepped in 
to cap retail rates in August. 
Just as worrisome to many observers is that wholesale electricity rates 
remain sky-high today, even after the end of peak summer power demand. 
Wholesale rates in October averaged about 10 cents a kilowatt-hour, double 
the average cost a year ago, said Patrick Dorinson, a spokesman for the 
Independent System Operator. 
In any case, billions of dollars of investments as well as the political 
careers of prominent California politicians could be affected by what FERC 
does. U.S. Energy Secretary Bill Richardson is coming out from Washington to 
hold a news conference with Gov. Gray Davis in Sacramento this morning to 
announce new, unspecified initiatives to address California's electricity 
problems. 
The Davis administration has gone on record demanding that FERC, which 
oversees the transmission and wholesale selling of electricity around the 
country, to step in and discharge its legal duty to restore "just and fair" 
electricity rates in California. The ballooning of electricity rates in San 
Diego during the summer created a political firestorm that raged unabated 
until the state Legislature imposed its caps. 
Rates paid by retail customers in the Southern California Edison and Pacific 
Gas & Electric coverage areas are frozen as well for the time being. But $5 
billion in "undercollections"--the difference between what the investor-owned 
utilities have paid for wholesale electricity this year and what they can 
charge consumers--looms overhead, worrying Wall Street. 
"I have no idea what the FERC will say," said state Public Utilities 
Commission President Loretta Lynch, a Davis appointee who says she is as much 
in suspense as anyone. "But we are expecting a substantial order that would 
move the ball forward on repairing the wholesale market in California." 
Consumer advocates and the state's major utilities would like to see FERC 
impose some sort of wholesale price controls--even gut the Power Exchange and 
the Independent System Operator because they are clearly not working as 
intended. 
"We expect some radical surgery," said Doug Kline, spokesman for Sempra 
Energy, the parent of San Diego Gas & Electric. 
Some consumer groups would like to see FERC declare the wholesale rates 
collected by generators "unjust and unreasonable," legal code words that 
would open the gates to actions by the PUC or the Legislature to force the 
power companies to disgorge or refund excessive profit. Such an action, which 
would lead to litigation by the power companies, is considered unlikely. 
Business interests, including the power generators that have reaped enormous 
profit from the dysfunctional market, are arguing to let free-market forces 
prevail because restrictive price caps would abort the market's evolution and 
possibly stifle construction of new power plants, which offer the best 
long-term solution to the state's predicament. 
"We expect that the FERC will find that the high prices of this past summer 
are a result of supply-and-demand imbalance and market design defects on the 
retail and wholesale side, but that the market participants have been playing 
within the rules and that there has been no manipulation or gaming," said 
Brent Bailey, general counsel of Duke Energy North America of Houston, a 
major generation player in the California market. 
Duke and others also strenuously oppose a solution proposed by the state's 
municipal utilities, notably the Los Angeles Department of Water and Power: 
that the industry in essence be re-regulated by imposing a system of 
cost-based rate controls, similar to how electricity rates were set before 
deregulation. 
Such a move would lead to lawsuits filed by Duke and other power merchants 
alleging "confiscatory" actions by the state nullifying the value of hundreds 
of millions of dollars they have invested in California power plants. Bailey 
favors temporary price caps until the market regains its balance, as well as 
new tweaking of the power market to stir up competition. 
Los Angeles DWP General Manager S. David Freeman, who has led calls for 
temporary imposition of cost-based rates, said California's failed 
deregulation experiment raises the possibility that electricity is 
intrinsically an "un-deregulatable" service. 
"Three years ago, I thought it would work. Then we had a train wreck," he 
said. "I'm not committing heresy when I say that I think it may not work out."


Copyright , 2000 Dow Jones & Company, Inc. All Rights Reserved.