E Source Teleconference Examines Ways to Solve California Power Crisis 
  
09/25/2000 
PR Newswire 
(Copyright (c) 2000, PR Newswire) 
BOULDER, Colo., Sept. 25 /PRNewswire/ -- In a teleconference held Friday 
afternoon, September 22, 2000, by E Source(TM), industry analysts proposed 
several solutions to remedy the imperfections in California's electric market 
and discussed ways that those lessons could be applied in other states that 
are considering restructuring their electric markets. 
No single "silver bullet" solution emerged from the panelists. Rather, they 
said that solving the California power situation would require a combination 
of supply, demand, pricing, and regulatory solutions. 
"It is important that we mend, not end, electric restructuring," said Ralph 
Cavanagh, co-director of the energy program at the Natural Resources Defense 
Council (NRDC). "Restructuring is a process, not an event," added Becky 
Kilbourne, director of market development for the California Power Exchange 
(CalPX). 
Bill LeBlanc, vice president of retail consulting at E Source, made this 
point: "It is very difficult to have an open market and a regulated market at 
the same time. And now, as additional regulations are being added to 
California's still-opening electric market, new and unpredictable market 
distortions are likely. Price volatility -- both upward and downward -- 
characterizes open markets. In a world of price volatility, customers need to 
have access to a rich portfolio of creative pricing options. Those who want 
price stability can pay a premium for it. Those willing to play in the 
dynamic, real-time pricing market will need load management capabilities that 
allow them to shed load quickly when prices spike." 
  Specific solutions discussed by the panelists included:  
  Supply Solutions   

Chris Seiple, director of supply-side consulting for RDI(TM), opined that 
this summer's price spikes were principally the result of insufficient power 
plant construction in California as its electric demand grew during the 
1990s. "The electricity market requires quick responses to changes in 
conditions and therefore it is a policy imperative that permitting of power 
plants be achieved more swiftly in California," said Seiple. He noted that 
electric demand in the western United States has grown by 14 percent during 
the second half of the 1990s, but generating capacity has grown by only 2 
percent. Roughly 3,600 megawatts (MW) of new generation is currently under 
construction and is scheduled to come online next year. An additional 800 MW 
of capacity now under construction is slated to come online in 2002, while 
another 6,000 MW of capacity is in the advanced development stage, with 
varying in-service dates. A further 20,000 MW of capacity is in 
early-development stage, he added. However, Seiple cautioned that delays in 
construction, a possible shortfall of turbines, and the power-development 
process itself could cause a recurrence of this summer's price spikes by 
2002. 
Not all supply solutions should be fossil-based, said NRDC's Cavanagh, who 
pointed out that the state of California is adding additional cost-effective 
renewables that will come online in the near future. These new resources will 
add to the thousands of megawatts of non-fossil generation capacity that have 
been installed over the past 20 years. 
Distributed Solutions 
In addition to wider use of renewable generation, several panelists agreed 
that increased deployment of cost-effective energy efficiency measures would 
serve to dampen future electric price spikes. Consumers also need to be 
reminded on a regular basis about the importance of wise energy use. 
"What California and the West need most urgently now is more of what has 
worked best to relieve strained power grids in recent years: investments in 
energy efficiency and renewable energy resources, which together have 
delivered more than 15,000 megawatts to California alone over the past two 
decades," Cavanagh added. 
"We need more distributed energy resources and energy efficiency measures to 
cut future price spikes," said Michael Shames, executive director of the 
Utility Consumers' Action Network (UCAN). He added that many large commercial 
customers in California are now considering self-generating their 
electricity, because they cannot tolerate sharp price swings and they are 
dissatisfied with the risk-management options they have today. 
Regulatory and Legal Solutions 
Kilbourne of the CalPX advocated limited wholesale price caps and an improved 
interface between wholesale and retail electric markets. She also echoed 
other panelists when she noted that regulatory disincentives in California 
caused many energy service providers (ESPs) to exit that market, leaving 
customers with little or no alternative when prices began rising. Having a 
larger number of ESPs and a broader range of retail offerings in the market 
could help avert future price spikes, she said. 
Ron Davis, director of the E Source Strategic Distribution Management Series, 
remarked: "The still-regulated distribution companies in California are being 
held responsible for protecting their retail consumers against the high 
prices in the state's wholesale power market. But by design, they lack the 
tools and incentives necessary to keep the power prices they pass on to 
consumers low and stable. And now, SDG&E is subject to another rate cap. 
Extending SDG&E's performance-based ratemaking (PBR) to the commodity side of 
the business, much like was done to allow natural gas services to share in 
the savings from securing lower cost supplies, is a better solution to help 
insulate customers from price volatility in the future." 
Looking Forward 
UCAN's Shames concluded that "San Diego's experience is a sobering and 
instructive harbinger of deregulatory turmoil that will hit other regions 
throughout the country." 
E Source believes that price volatility will be part of life in retail 
electric and gas markets that are going through restructuring. Retailers and 
consumers alike need to protect themselves with hedging investments, load 
management capabilities, energy efficiency upgrades, and other measures. E 
Source believes that regulators, lawmakers, ESPs, consumers, commercial 
customers, and other participants in the restructuring of retail electric and 
gas markets should closely follow and implement the lessons from the still- 
evolving California market. 
E Source and RDI are trademarks of Financial Times Energy, Inc., which is 
headquartered in Boulder, Colorado. FT Energy is a leading provider of 
objective information and analysis on restructuring electric and gas markets, 
wholesale power trends, fuel prices and projections, and other vital 
knowledge about the electric and gas businesses. If you would like to speak 
with any of the people quoted in this release, please contact Jim Keener at 
720-548-5624. 

/CONTACT: Jim Keener of E Source, 720-548-5624, jkeener@ftenergy.com/ 14:00 
EDT 

Folder Name: Electric Restructuring 
Relevance Score on Scale of 100: 79

______________________________________________________________________ 
To review or revise your folder, visit Dow Jones CustomClips or contact Dow 
Jones Customer Service by e-mail at custom.news@bis.dowjones.com or by phone 
at 800-369-7466. (Outside the U.S. and Canada, call 609-452-1511 or contact 
your local sales representative.) 
______________________________________________________________________ 
Copyright (c) 2000 Dow Jones & Company, Inc. All Rights Reserved