Depending on who you talk to, a July 12 meeting to stabilize the price of electricity was either a success or it wasn’t.
Various energy officials at the daylong session said the meeting led to concrete steps that would help reduce the high costs of energy. San Diego utility customers could see results as early as their next bill.
But Michael Shames, executive director of Utility Consumer Action Network, disagreed. Shames said the meeting only strengthened his resolve to demand that the California Public Utilities Commission impose a rate freeze for the area.
The meeting was attended by energy producers and other officials from throughout the industry. The meeting came in response to local electricity rates climbing about 400 percent in the last three months.
Ed Guiles, president of San Diego Gas & Electric Co., said the price spikes have hit San Diego hardest because the area is the first in the nation where the commodity price of electricity is open to competition. SDG & E; called for the meeting to look to discuss the ways to lessen the impact of those price spikes, he said.
Some of the things to come out of the meeting could include a new commitment to “hedge,” or lock in, fixed prices for energy under long-term contracts.
Criticism Unfair
Wayne Sakarias, director of fuels and power supply for SDG & E;, said criticisms that the utility didn’t hedge power deals earlier this year to lock in lower rates were unfair.
For one thing, he said, the market is thinly traded. For another, SDG & E; is authorized to hedge only 10 percent of its demand, he said.
“Even if we were to participate in those markets, it would not have a significant impact on prices, even if we made a killing , which, in this kind of market, people typically don’t make killings,” Sakarias said.
Other utilities had guessed wrong when they hedged, and ended up paying even higher rates for electricity. Compared against SDG & E;, other utilities in the state are paying even higher costs for electricity, Sakarias said.
Another possibility that may help SDG & E; obtain lower rates for its customers is an offer from the Power Exchange , California’s arbiter of electricity bought and sold in the state. The PX, as it is called, may make available electricity at a fixed price during time specific periods, Guiles said.
That proposal , a concept for a new program by the PX , would be worked out jointly between the PX, SDG & E; and the Independent System Operator (ISO), the controller of the state’s power grid, he said.
Rate Plans
Another topic of discussion was connecting SDG & E; customers with demand management experts, who would provide their expertise on how to reduce demand during the peak times, and help reduce local utility bills, Guiles said.
Currently, SDG & E; has an offer to let customers go on the “level pay” plan. This averages out the cost of electricity over a year, so customers won’t see price spikes like the ones that happened in June, he said.
Guiles remained noncommittal when asked about state Sen. Steve Peace’s widely publicized comments that San Diego customers should skip payment on the July bill, and wait for an SDG & E; refund check in August to pay the summer bills. The utility company would work with customers on flexible pay options, he said.
Guiles also reiterated SDG & E;’s position that it is not to blame for the price spikes. It is no longer in the business of generating energy in San Diego, and instead is required to buy its electricity from the Power Exchange. The utility passes along that cost without a markup, Guiles said.
Most of the officials blamed the high electricity prices on the increased demand and constricted supply. Prices are up throughout the West, not just San Diego, said Jan Smutny-Jones, executive director of the Independent Energy Producers Association.
Consumption Has Grown
Kellan Fluckinger, chief operations officer with the ISO, noted that with each passing year, California’s peak demand for electricity has grown by 1,000 megawatt hours. That’s the equivalent of two power plants , and yet no new plants have been sited in California in the last decade, he said.
The problem won’t be solved until new power plants come on line, but in the meantime, the ISO was willing to support whatever short-term solutions SDG & E; comes up with, Fluckinger said.
Tom Williams, spokesman for Duke Energy North America, said his company was committed to providing new electricity generation capacity for California and San Diego. Duke will invest $1.6 billion in power plants , including $500 million to upgrade its plant in Chula Vista, he said.
Williams said the price for electricity is up for a number of reasons. The cost for natural gas has doubled, and that has doubled the cost to generate electric power. Also, temperatures are higher and water flows needed for hydroelectric generation are lower than they were last summer.
California’s economic growth has increased demand, while growth elsewhere has reduced the amount of electricity California is able to import. That makes the siting of new power plants critical, he said.
Generating Plants
Sharon Segner, spokeswoman for PG & E; Generating, a subsidiary of Pacific Gas & Electric, said her company is committed to a 500-megawatt natural gas-fired power plant in Otay Mesa. Approval for the power plant could come this year, with a projected groundbreaking by December and a targeted opening in summer or fall of 2002.
Jack Russ, director of power resources for Commonwealth Energy, also committed to provide increased electricity for California. As an energy service provider, it can purchase its power more creatively, from sources other than the PX, he said.
Russ added the one thing which he felt was the wrong way to go about solving the problem is price caps.
“We do not feel that to put price caps on is going to set the right price signals to both consumers and particularly generators,” he said. “We do not feel that this short-term solution is something that would benefit the state of California in the long run.”
Shames, however, strongly disagrees. He was not assuaged by the assurances of the other participants.
“You pretty much heard (there was) a ‘constructive, frank discussion,’ which translated means, ‘We had a discussion that we should have had six months ago and we’re probably no closer to immediate solutions,” he said.
Shames noted that there were solutions outlined, but no “meeting of the minds.” That has led to an impasse, and there are still “big problems,” he said.
Rate Freeze Needed
“As a result of today, I am more convinced than ever that we do need a rate freeze, and need it now, in order to provide us the time that we need to come to concrete, serious solutions,” he said.
Shames also urged SDG & E; customers to step forward and make their views known to the CPUC. They need to show that a rate freeze has massive public support, he said.
“My recommendation for a frustrated business is to call or write, or fly up to San Francisco and visit the public utilities commissioners and say, ‘What the hell are you doing down here? You’re killing us.'”
Shames noted that he had predicted the current effects of deregulation as early as last September in a UCAN white paper. But he had predicted rates going up only 60 to 70 percent, not the fourfold increase in prices customers have been seeing, he said.
The good news to come out of the meeting is that several energy generators have pledged to work with SDG & E; on purchase plans that will help get the price down. However, Shames said he was concerned the price these companies will provide will not be significantly lower than the “astronomical” levels the customers are now seeing.
Shames also took a swipe at Guiles’ stated position that SDG & E; only passes along its own cost for electricity without a markup, and therefore is not responsible for managing the high rates. He stopped inches short of calling Guiles an outright liar.
“You say that over and over; you think that if you say that often enough, people will believe it. It’s just not true. For the time being, until this market is functioning properly, SDG & E; has an obligation,” he said.
Shames agreed that prices for electricity are up everywhere, not just in San Diego. But that wasn’t the issue, he said.
“The issue is there was no protection. There was no safety net. There was nothing in place to prevent rate shock from occurring, and we’ve not seen that in other areas. That’s the issue here.”
Both Guiles and Shames did agree on one potential long-term solution for the current energy crisis , “real-time” metering. Current meters average out the total cost of electricity, and apply that rate to the total amount of energy used in calculating the bill, Guiles said.
With a real-time meter, the price of electricity would rise and fall with demand. That means electricity would cost consumers less at night, and would reward customers who run their washing machines and other appliances when the demand for electricity is lower, Guiles said.
Since electricity is perhaps the only commodity whose price rises and falls as much as 100 percent on any given day, customers could take advantage of these lower prices and save money, he said.
Before the end of July, SDG & E; will be filing with the CPUC for authority to install hourly meters on a wide basis in San Diego. But since SDG & E; has 1.2 million customers, it will be a long time before real-time meters can be installed in every household, Guiles said.
Shames agreed that real-time metering would benefit customers because they would pay for the actual cost for electricity. This would help them manage their electrical use, and bills would go down, he said.
But this is only useful as a long-term solution, and other work needs to be done in the meantime, Shames said.
“If we don’t fix the short-term problem, there will be no long term,” he said.
In the long term, deregulation’s greatest challenge is the dearth of electrical generators in the state. But in order to attract new power plants into California, the state must remain committed to deregulation, said Smutny-Jones of the Independent Energy Producers Association.
“The worst possible outcome for California, and for small residential customers, is for deregulation in this state to fail. There is no going backwards. California is competing for all of these turbines with an international market.
“If we begin to look like Indonesia, we’re going to have serious reliability problems in this state, and the lights are going to go out. We cannot afford to fail,” he said.
