California PUC derides deregulated electricity market

In a report to California Gov. Gray Davis, California PUC President Loretta Lynch heavily criticizes the operations of the California Independent System Operator and the functioning of the new deregulated electricity market. The report suggests that state agencies should have more say in how the market functions. The PUC is concerned about the huge electric bills received by San Diegans and the recent rolling blackouts suffered in the San Francisco Bay area.

Ann de Rouffignac

The clash among those demanding lower electricity rates and those advocating a free market continues to play out in California this week.

Taking aim at the California Independent System Operator in a report sent to Gov. Gray Davis this week, Loretta Lynch president of the California Public Utilities Commission (PUC), expressed concern the market was not functioning properly because of the huge increase in electricity prices to customers in San Diego.

�The Bay area black-outs, the run up in prices in the wholesale electricity market, and the rise in retail electricity prices in San Diego show that the new system is not working for California. Because of serious market defects and tight supplies of electricity, purchasers of power will pay billions more this year. These price increases do not fund investments in electricity supply or reliability but flow solely to power producer profits,� the report states.

The report has a series of suggestions to address the crisis this summer. For the longer term many would insert the PUC�s influence back into the operations and decisions made for the electricity grid and the market.

The market needs �correcting� because members of the ISO board could be unfairly influencing the market for the private gain of their own individual companies, the report suggests.

�The nonprofit private corporations that operate the state�s transmission system and control wholesale pricing policies are governed by boards whose members can have serious conflicts of interest. Some of the board members or their companies financially benefit from higher price electricity markets,� the report states.

But close observers to the California market note that only 3 of the 26-member board of the ISO have anything to do with merchant power or marketing. Three other board members are representatives from the investor-owned utilities. Six out of 26 could hardly be construed as dominating the board or the operational decisions by the ISO, says Joe Ronan, regulatory affairs executive of Calpine Corp., a large independent power company with interests in the California market.

He suggests that FERC will be looking very closely into the continued attempt by politicians and other state agencies to assert their influence on the operations of the ISO and on the individual ISO board members.

�FERC is not amused by all this,� says Ronan. �It�s a real mess out here.�

The PUC also suggests in the report that the ISO is not �fairly distributing� the outages among the state�s affected population.

To remedy the alleged unfair treatment, PUC suggests that it be authorized�along with the utilities�when to shut off electricity in a Stage 3 emergency. The ISO has a system of emergency stages triggered by a certain demand in relation to the available capacity reserves.

Patrick Dorinson, spokesman for the ISO, says if customers are removed from service, it�s only to manage the crisis and ensure the reliability of the entire system.

�We didn�t build this system,� he says. �We got handed this system.�

The serious threats of outages are the results of too much demand for the available supply. The process of getting power plants approved by the very state agencies doing the criticizing now takes too long , industry observers agree.

Also, years of uncertainty during the process of deregulation discouraged any new plant investment or transmission upgrades by the investor-owned utilities and other public power companies.

The California ISO makes operational decisions based on preserving the reliability and integrity of the entire system and does not selectively choose which parts of California should be without power, Dorinson says.

�These are professional engineers who make these decisions based on the entire system,� says Dorinson. �Getting customers off the system is not something they enjoy.�

The California ISO is expected to respond to the PUC�s critique Tuesday.

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