Tighter controls on electricity market proposed

The Associated Press
Friday November 24, 2000

Energy Secretary Bill Richardson proposed tighter price controls Wednesday on the California electricity market, to help combat skyrocketing rates that have plagued the San Diego area since summer. 

He urged the Federal Energy Regulatory Commission to cap wholesale prices at the cost to generators for the next two years. This would contrast the current open bidding that fluctuates under a state-ordered cap of $250 per megawatt hour. 

Richardson also called for a broader investigation of pricing during recent months, to determine whether utilities cheated customers over the summer. FERC found no evidence of price fixing, after investigating from late August to November. 

“I am very concerned that California’s electricity markets continue to operate in a dysfunctional manner,” he said. 

Richardson’s nine pages of written comments to FERC are among many the agency will consider in trying to fix electricity prices that doubled and tripled for San Diego customers during the summer. Although FERC set a Wednesday deadline for comments, commissioners extended the date for their final order in the case to mid-December, giving Gov. Gray Davis a chance to submit a detailed proposal by Dec. 1. 

Richardson stopped short of urging refunds. But he appeared to side with California regulators, who have called for strict wholesale price controls and who believe FERC has the authority to order refunds. 

Later Wednesday, San Diego Gas and Electric Co. asked FERC to order refunds to customers and implement cost controls. SDG&E asked FERC to forego the idea of imposing a $150 per megawatt-hour cap on rates and instead proposed wholesale caps based on the actual cost of electricity to the generators. 

The state Public Utilities Commission on Tuesday said FERC has failed to intervene decisively in California’s electricity market. The PUC estimated there were $4 billion in excess wholesale electricity charges through the summer. 

Richardson’s comments come in response to FERC ruling Nov. 1 that prices were “unjust and unreasonable,” setting the stage for a federal order to help remedy the problems. Agency proposals include: 

• Creating a “soft cap” for auctions on electricity of $150 per megawatt hour. Prices below that figure would be accepted as usual, but companies bidding above that rate would have to file paperwork with FERC defending the higher price. 

• Requiring utility suppliers to buy 95 percent of their electricity from generators more than a day in advance, to blunt high costs. FERC would impose a fee of $100 per megawatt hour if a utility disobeyed. 

• Offering the prospect of refunds for exorbitant power costs between October 2000 to Dec. 31, 2002. 

Davis is pushing for refunds for summer costs, which FERC commissioners say they don’t have the authority to order. 

Richardson offered to mediate between Davis and FERC. Richardson agreed that FERC has no authority to order retroactive refunds. 

“It is time for the finger pointing to stop and for all of the parties to work together to put in place corrective measures as quickly as possible in order to ensure competitive markets,” Richardson said. 

Richardson said his auction proposal would result in lower prices than FERC’s “soft cap.” He said the Independent System Operator, which manages the state’s power grid and coordinates distribution of about 80 percent of the electricity statewide, should audit generators to determine their costs. 

He argued that his plan would lower rates better than the $150 soft cap, which he said “may not establish sufficient price discipline on the market until new capacity is added.” 

“The department urges the commission to consider, as an alternative, a cap on bids from existing generators,” Richardson said. 

San Diego Gas and Electric Co., with 1.2 million customers, was the first to complete the transition to deregulation under a 1996 law.  

But as the cost of wholesale electricity climbed sharply over the summer because of inadequate supply and hot weather, the utility passed the costs along to customers. 


The state’s two largest power utilities, Pacific Gas and Electric Co. and Southern California Edison Co., face a similar situation when they complete the transition to deregulation, perhaps as early as next year. 

Both utilities have filed suit in federal court seeking to recoup their losses, estimated at more than $5 billion between them. 


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