It truly sounds so simple, so logical. California has a shortage of electrical power plants. So just build more , fast , and all our energy worries will go away, right?
That’s what the power industry and its cronies at the state Independent System Operator (ISO) and the Power Exchange (PX) would like you to think. However, what they want the consumer to know and believe, and what they do behind closed corporate doors are two different things entirely.
In fact, it’s becoming painfully obvious few people actually know what’s going on behind those closed doors at the ISO, a private, nonprofit public benefit agency charged with coordinating the flow of electricity across the statewide energy grid, and the PX, another public benefit agency that acts as the commodities market for energy purchases in California. The governing boards of both agencies are comprised largely of energy industry executives.
Certainly the regulators over at the California Electricity Oversight Board (EOB) don’t have much of an idea of what’s happening at the ISO and PX. Though deregulation abdicated most local energy regulation to the federal government, the five-member EOB was set up to oversee the actions of the ISO and PX, and to protect consumers’ interest. But when the EOB demanded the two agencies turn over information about this summer’s skyrocketing electricity prices, the ISO and PX simply thumbed their corporate noses at them.
After weeks of being stonewalled, the EOB finally issued subpoenas for the information. (Apparently so have federal investigators, the state Attorney General and the California Public Utilities Commission.)
Even then, the ISO and PX seemed not to get the message. Dow Jones Energy Service recently reported the ISO and PX irritated the energy board by sending federal energy regulators a plan for changing the way the ISO purchases power without ever clearing the plan with state regulators.
This lack of communication seems to exist between the ISO and the PX, as well. Last May, predicting summertime electricity supply shortages, the ISO launched a campaign aimed at curbing Californians’ energy appetite. Someone at the ISO should have sent an advance copy of the ISO’s press release to the PX, which for several months had been touting a new agreement to export California-produced electricity to Mexico.
According to PX press releases, the agency now boasts among its traders Mexico’s Comision Federal de Electricidad and the Canadian British Columbia Power Exchange Corp., not to mention energy producers in the Northwest, Arizona and Nevada.
Of course, in electricity commodity trading it’s expected the PX would seek out imported energy to serve the California market. But a PX press release issued in November 1999, when the PX opened its agreement with the Mexican power exchange, made it clear which compass bearing the electricity would be taking.
The agreement, the release reads, “will further increase volume and opportunities for generators to supply energy to Mexico.” In addition, an article in the PX’s official newsletter, Up-date, stated: “Energy purchased through CalPX markets will be used primarily to serve the growing demand for electricity due to increasing commercial and residential development in the northern Baja area.”
This, of course, puts a dagger into the heart of the power industry’s argument that California needs more power plants to make deregulation work. The number of power plants in the state hasn’t changed since November 1999. Yet at that time, the PX seemed to believe there was plenty of excess power available in the California marketplace to export to other countries.
It also proves no matter how many new power plants California builds, under deregulation there is no guarantee the energy they produce will be available for San Diegans or anyone else in the state. Indeed, the American power industry is eager to begin exporting power to foreign countries like Mexico where the growth rate of energy usage is much higher than in the United States.
The problem with the ISO and the PX is that both agencies have taken on characteristics of Dr. Frankenstein’s creation. Though formed by state legislation as public benefit corporations to act for the benefit of California consumers, both agencies seem more intent on growing their spheres of influence and power far beyond the physical boundaries of the state or the legal boundaries of their mandates.
Last December, for instance, the ISO made an attempt to run Nevada’s power grid; Nevada said no thanks. In February, the ISO tried to set itself up in the transmission line ownership business, much to the horror of the state’s private utilities.
The California PX, the largest of 15 power exchanges in the world, makes no bones about its intent. Not satisfied with its legally mandated job of brokering electricity for California utilities, the PX wants to become what its CEO George Sladoje calls a “regional energy exchange” , a sort of power industry version of the Commodities Future Trading Commission.
Such a grab for power , both electrical and political , hasn’t been seen in this state since the city of Los Angeles took over Northern California’s Owens River in the 1930s, a particularly ugly and bloody part of our state’s history that was the basis for the Jack Nicholson movie “Chinatown.” As we have seen this summer, the consumer ends up paying the tab for all this greed and avarice.
According to the Dow Jones report, EOB Executive Director Gary Heath warned both the ISO and the PX that “what was created by the state can be undone.” Like Frankenstein’s monster, that may be the only way to stop the rampages of the Independent System Operator and the Power Exchange.
Hill is editor of the Business Journal.
