Wholesale Price Caps Would Return Free
Market to Regulation
San Diego Gas & Electric Co., still reeling from the veto of a measure which would have given it some rate relief, is hoping its salvation will come from the federal government.
The utility wants federal regulators to place rate caps on the price power generators can charge utilities, a move that would, at least temporarily, return the competitive energy market to a regulated market.
Gov. Gray Davis moved Sept. 29 to veto AB-1156, which would have provided $150 million in state aid to help San Diegans pay high electricity bills when its rate cap expires in 2003.
Now the utility is hoping the Federal Energy Regulatory Commission will enact a temporary market stabilization measure to set caps on price generators and traders. The move, if enacted, would limit what they can ask for when bidding into power markets in California.
The California Public Utilities Commission was scheduled to meet Oct. 5 to discuss whether to request the FERC enact the measure. Their decision was not available as of press time. Armando Rendon, spokesman for the CPUC, confirmed the item was scheduled to be discussed at the Oct. 5 meeting. But since it is a closed session item, he was unable to comment on the matter.
The proposed rule before the CPUC would go a long way to helping out SDG & E.; Art Larson, spokesman for Sempra Energy, parent company of SDG & E;, said the utility was disappointed by the governor’s decision Sept. 29.
‘Real And Immediate Relief’
“This is the only one of those three bills passed by the Legislature that would have provided real and immediate relief for our customers. The bills that did become law just deferred millions of dollars in energy payments for years to come,” Larson said.
Under the current legislation, local ratepayers have their electric rates capped at 6.5 cents per kilowatt for the energy commodity charge on the bill, retroactive to June 1. But over the summer, prices soared as high as 21.4 cents per kilowatt, before settling back down to 14.5 cents as of Oct. 5.
The difference goes into a “balancing account” that local ratepayers may be on the hook for in 2003. That balancing account could rise as high as $800 million by that time, Larson said.
At the end of next month, Larson expects the balancing account to cross the $300 million mark, he said.
The $150 million from the state fund would have gone a long way to helping out San Diego ratepayers, he said.
Now their best hope is the proposed measure before the CPUC. Ed Van Herik, spokesman for SDG & E;, said the utility is a strong proponent of rate caps at the wholesale level.
Without wholesale rate caps, SDG & E; gets squeezed as its own prices rise, and yet it faces its own rate caps on what it can charge its customers at the retail level. That puts the squeeze on the utility in the middle, Van Herik said.
“We feel that the wholesale market is broken, and corrective measures need to be taken,” he said.
But Tom Williams disagreed. As a spokesman for Duke Energy Corp., which has a 10-year lease on the 706-megawatt South Bay Power Plant in Chula Vista, he stressed that just because retail markets aren’t working, that doesn’t mean that wholesale markets are broken, too.
Williams said the CPUC is trying to see how far it can go before it pushes independent power producers out of the state. He noted the regulatory body had acted earlier this summer to enact a price cap of $250 per megawatt-hour.
That made it more difficult for the company to turn a profit, but so far has not discouraged Duke from investing in local power production. However, further regulations could force Duke to look elsewhere for building power plants, he said.
Michael Shames, meanwhile, has a different opinion. As the executive director of the Utility Consumers’ Action Network, he sides with SDG & E; in supporting wholesale price caps.
“This will substantially decrease rates, depending on what cap they’re asking for,” Shames said. “It’s a critical step that has to be taken. The current market is not functioning.”
Shames said rate cap would be a benefit for everyone by securing lower prices for ratepayers, while giving SDG & E; a break on its balancing account.
It would even benefit generators, by ensuring that they can continue to make profits at just and reasonable rates without any market disruptions, he said.
A wholesale price cap would be the right solution for San Diego, Shames said, unlike AB-1156, which he praised the governor for vetoing.
That measure was premature, he said, and would have set a precedent for blindly bailing out utilities. Also, in providing $150 million toward payment of the balancing account, it would have left San Diego residents on the hook for the remaining amount, he said.
These and other difficulties would have made AB-1156 untenable. The real solution lies with the FERC setting wholesale price caps as a market stabilization measure, Shames said.
Shames concedes that the likelihood of FERC approving a regionwide price cap is fairly low. However, there are many other measures that the FERC can take, he said.
Whatever action the FERC takes, San Diego will be in a better position next summer than this summer. How much better remains to be seen, Shames said.