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Tuesday, Jul 23, 2024

ENERGY—Lowered Energy Price Cap Impact Uncertain

San Diego Gas & Electric Co. customers might benefit from two recent votes affecting local energy prices, but the effects remain to be seen.

The California Independent System Operator, which operates the state’s electricity grid, voted Aug. 1 to reduce the price cap on wholesale power purchases in California down to $250 per megawatt hour.

A spokesman for state Sen. Steve Peace, D-La Mesa, said the vote would help local customers since the ISO will not pay as much for its energy reserves.

Peace’s office was also hoping the California Public Utilities Commission would institute a rate freeze on SDG & E;, which would bar the utility from increasing its pass-along rate costs. The results of the Aug. 3 CPUC vote were not available at press time.

The ISO price cap, which had been raised from $250 to $750 last year, was lowered to $500 earlier this year. A vote to lower it back to $250 last month failed 12-9, or one vote short of a 13-member majority out of the 25 governors.Last week, the 15-6 vote returned the price cap to $250. Kellan Fluckiger, chief operating officer for the ISO, said the change occurred because more of the governors were moved by San Diego’s situation.

Energy Shortage

The ISO is required to balance the needs of ratepayers against the needs of generators, in order to attract more electricity providers into the state. Part of the reason energy rates are so high locally is that there is not enough electricity available for California, Fluckiger said.

The ISO voted last year to raise the cap to $750 with the understanding that it could be reduced to $500 in the summer if prices began spiraling out of control. At the time of last month’s vote, many governors felt that to reduce any further would be counter to the signals the ISO was trying to send to power providers, he said.

That would move energy providers to turn their backs on California and invest in power plants elsewhere, Fluckiger said.

SDG & E; officials hailed the $250 price cap, saying this would lower utility bills by an estimated 30 percent. Electricity customers in San Diego County and southern Orange County would have saved $80 million in June and July had the rate cap been in effect, said Doug Kline, a spokesman for SDG & E.;

Kline also said SDG & E; would file with the Federal Energy Regulatory Commission to impose a $250 price cap on the bids of electricity sellers into wholesale electricity markets of the ISO and the California Power Exchange (PX).

Marketplace Not Yet Competitive

Edwin Guiles, president of SDG & E;, said this would help utility customers.

“California’s newly deregulated electric marketplace is not workably competitive yet, and as a result, our customers have unfairly borne the brunt of runaway wholesale electric prices,” he said. “(This) is a significant positive step toward providing economic relief for our 1.2 million customers, while allowing the immature competitive marketplace in the state to develop.”

Guiles also reiterated his earlier statements that SDG & E; no longer sets the price of electricity for its customers. Under California’s restructuring plan, the utility has sold its fossil-fuel plants throughout the county and must now purchase all electricity for its customers at the PX, passing the cost along with no markup, he said.

Utility Consumers’ Action Network executive director Michael Shames disputed that, saying Sempra Energy, SDG & E;’s parent company, is “making out like a bandit.” Shames pointed to Sempra’s own financial report, showing it achieved an unprecedented 34 percent jump in overall earnings in the past quarter.

Sempra Profits

“Sempra has finally revealed what those observers to this situation have long understood: While SDG & E; may not be profiting during these price spikes, SDG & E;’s holding company Sempra is profiting from the California volatility and will continue to do so,” he said.

Shames also remains skeptical whether the ISO price caps will have any effect. While not opposed to the lower price cap, Shames predicted it will have little beneficial impact for consumers and may increase the likelihood of statewide energy blackouts.

Shames also said power providers have a “dirty little secret” , there is a little-known loophole that allows the ISO to purchase power at above $250 if that power is needed to keep the lights on. Generators will be able to exploit this loophole by withholding power and waiting for the ISO to come to them, he said.

San Diego residents should know whether the price cap has worked by later this week, depending on whether prices drop. Shames doubts the price cap reduction is the “magic fix” people are looking for, he said.

Retail Cap

What would work is the one measure that is backed not only by UCAN, but by a broad coalition of San Diego politicians and business advocates , pressing the CPUC to reinstate the retail cap in SDG & E;’s service territory. The cap should also remain in effect in all markets until the stability of the wholesale market is assured, he said.

Supporters of UCAN’s petition include both the county and city of San Diego, Sen. Peace, state Sen. Dede Alpert, D-Coronado, both mayoral candidates for San Diego, the California Small Business Association, the California Streetlighting Association and The Utility Reform Network.

Even longtime advocates of a competitive market and opponents of government intervention, such as the California Manufacturers & Technology Association and the Federal Executive Agencies, are not opposed to the concept of the proposed rate freeze, Shames said.

He said that leaves the utilities and energy providers as the only opponents to a potential rate freeze. SDG & E; is joined by Pacific Gas & Electric Southern California Edison, Commonwealth Energy, Shell and several other energy providers in opposition, Shames said.

However, a spokeswoman for SDG & E; said utilities aren’t the only ones opposed to a rate freeze. They’re also joined by Henry Duque, commissioner with the CPUC, Angie Minkin, an administrative law judge with the CPUC, and the Office of Ratepayer Advocates within the CPUC, said Alex Hemerick.

Wholesale Problems

SDG & E; rejects a retail rate freeze because the problems are mostly at the wholesale level, Hemerick said. A rate freeze would impose regulations on the utility to accomplish the same thing SDG & E; is already doing with its “Level Pay Plan” , locking in lower rates at a set level, she said.

Other programs, including the California Alternate Rates for Energy and the Summer Utility Relief Fund, may also help. CARE and SURF are for low-income and fixed-income residents having trouble with utility bills, Hemerick said.

Shames, however, blasted the Level Pay Plan, pointing out it requires San Diego residents to pay the full cost and bear the full responsibility for the skyrocketing electricity rates.

The Level Pay Plan also locks in the cost of electricity at a higher rate, varying between $70 and $90 a month, with a possible balloon payment of $129 just in time for next summer, he said.

Controls Not In Place

Ross Starr, professor of economics for UCSD, said some kind of controls on utility bills , either through a rate freeze or through a Level Pay Plan , should have been in place from the beginning. He acknowledged that certain laws or regulations may have prevented the utility from doing that at an earlier stage.

Market volatility is a “perfectly predictable consequence” of deregulation. Slight changes in demand can lead to big changes in price, Starr said.

SDG & E; has been buying electricity on an as-needed basis, which leads to lower prices for customers when supply outpaces demand. But when demand rises, the utility , and therefore its customers , end up paying sharply higher prices.

The alternative to buying electricity on an as-needed basis is to “hedge,” or enter into long-term contracts to buy electricity at a fixed price. The disadvantage to hedging is a utility may lock in a higher price, leaving customers to foot the bill.

Also, a utility may buy more electricity than it can use, and must take a loss as it tries to unload the electricity it bought, Starr said.

Utilities are only now learning how to hedge and are not quite comfortable with the process yet, he said.


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