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Proposal could help avoid price spikes seen in San Diego following industry deregulation 

FOLSOM – California regulators want electricity suppliers to make pricing commitments to avoid the rate spikes San Diego power users experienced this summer. 

Terry Winter, CEO of the California Independent System Operator, filed a proposal Friday with the Federal Energy Regulatory Commission that, if approved, would require power generators to sell 70 percent of their power anywhere from one day to five years in advance to keep wholesale rates lower for utilities. 

Right now, California allows power suppliers to charge no more than $250 per megawatt hour. Under the proposal, those that refused to sell 70 percent of their power in advance would be allowed to charge no more than $100 per megawatt hour. 

ISO officials say that requiring advanced sales would allow utilities to buy power when rates are low. 

“If you need 100 megawatts and you wait until a minute before, the market says you’re going to pay more,” Winter said. “If you’re willing to plan, the prices ... will be lower.” 

The lower wholesale prices would result in lower rates for residential and business customers, Winter said. 

It would also provide a more stable electricity market for the next two to three years, while more power plants come online and increase the supply of electricity, he said. 

Utility rates doubled and in some cases tripled this summer for customers of San Diego Gas and Electric Co., the first utility in the state to deregulate under a 1996 state law and buy power on the open market. 

The San Diego utility filed its own request with the FERC on Friday, asking regulators to implement emergency, temporary wholesale market price caps of $100 per megawatt hour until the market is competitive. 

Spokesman Art Larson of San Diego Gas and Electric said the utility’s proposal would last at least through March. 

“We believe the emergency measure should eventually be replaced with a refined formula, something that’s more inline with the cost of generation,” he said. 

Tom Williams, spokesman for Duke Energy North America, said his company, which generates about 4 percent of the state’s power, isn’t opposed to temporary price caps. 

“We don’t like caps, but if you need one for a temporary time period to solve a problem and it’s a piece of the equation, ... that needs to be part of the mix,” Williams said. 

A number of generators already sell at least 50 percent of their supply ahead of time, said Jan Smutny-Jones, executive director of the Independent Energy Producers. 

“I think that as a general matter, the generators are against price caps and over-intrusiveness into the market by the ISO,” said Smutny-Jones. 

State Sen. Dede Alpert, D-San Diego, called both proposals “interesting,” and said she would like the FERC to approve any plan that cuts wholesale rates. 

“If we’re going to get to a place where deregulation is going to work, maybe these are the tools to get us through the transition while still encouraging people to build new supplies,” Alpert said. 

The Folsom-based Independent System Operator controls the grid that transmits about 75 percent of the state’s power. The ISO’s authority to cap prices will end Nov. 15, unless the FERC extends it, said Roger Smith, senior regulatory counsel for the ISO. 

Since a cap on wholesale prices might discourage construction of new power plants, the plan would exempt new generators, Winters said. 

The ISO was created to control the last-minute demand, usually the last 5 percent of the power market, but that plan hasn’t worked, both Winters and Smutny-Jones said. 

“We’ve had days this summer where 25 percent to 30 percent is in the ISO market. That’s when reliability becomes jeopardized,” Smutny-Jones said. 

Calls to the Federal Energy Regulatory Commission offices in San Francisco were referred to the Washington D.C. office. Messages left at the Washington D.C. office were not immediately returned.