|
|
Enron Mail |
fyi
---------------------- Forwarded by Peggy Mahoney/HOU/EES on 08/16/2000 06:= 24=20 PM --------------------------- "RCI IssueAlert" <IssueAlert@consultrci.com< on 08/16/2000 05:50:45 AM To:=20 cc: =20 Subject: A Return to Regulation? California Problems Spark National Trend Feedback regarding RCI's IssueAlert should be sent to wmcnamara@consultrci.= com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D ConsultRCI.com IssueAlert, August 16, 2000 A Return to Regulation? California Problems Spark National Trend By: Will McNamara =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D With state power reserves falling below 7 percent for the second straight day, and the demand for electricity continuing to increase, the California Independent System Operator (CA-ISO), issued a Stage Two electrical emergen= cy on Tuesday. A Stage Two Emergency is a serious occurrence as it signals that electric operating reserves in the state have fallen below 5 percent. The Cal-ISO has issued over 10 Stage Two emergencies this summer, leaving little doubt that the power supply problem in California has reached=20 disastrous proportions. Other states (and foreign countries such as Japan) that have deregulated their energy markets=01*or are about to do so=01*have kept a cl= ose eye on the problems in California. These problems have sparked a national debate over whether returning to or maintaining a regulated energy market is a better option. ANALYSIS: I've been tracking the chronic problems facing California in RCI's IssueAlerts for several months, so for further background please visit our archives at the link offered below. Yet, generally speaking, it's fairly obvious that the promises of deregulation in California have not materialized. Limited transmission lines, the fact that no new power plants have been built in almost two decades, and a 3-percent increase in demand have driven costs up in California instead of down. On Tuesday, approximately 43,218 MW of power was consumed, topping Monday's peak of 43,087 MW. Exacerbating the already tight supplies is the fact that some 2,220 MW of generation, mostly in Southern California, are unavailable due to power plant mechanical failures. However, perhaps even more pertinent is a movement that I am seeing develop both within California and other states that arguably is a direct result of the problems we've seen on the West Coast. This movement is founded on a platform that suggests deregulated energy markets should become regula= ted once again, and those states that haven't adopted a restructuring plan should take a "timeout" and reconsider if competition truly offers more benefits than headaches. Not surprisingly, California lawmakers and consumer advocates=01*blaming=20 deregulation for the high rates that customers of San Diego Gas & Electric are now payin= g=01* suggested that the California market should become "re-regulated." Proposals included imposing more governmental control over energy prices (which led to the recent lowering of the price cap in the state to $250/MW) to having utility companies buy back all the power plants they were forced to sell only two years ago. But the discussion of re-regulation has not been limited to California. The New York City Council, for instance, has posted a bill that would give the City authority to regulate the output of lead into the atmosphere. As lead is a small part of the pollution generated by power plants, if this bill passes the City would have a handle on power generation that it does not now have. Even more striking is the coalition of 23 low-cost energy states that have petitioned Congress to exempt them from participating in deregulation. The Low-Cost Electricity States Initiative (LCESI) actually has been in existence for over a year, but is gaining momentum again now that it can use California as an example of all that is wrong with deregulation. Some of these states only want to open their wholesale markets to competition, but not their retail markets. Others want to avoid deregulation altogether. As a lobbying group, the LCESI has tried to convince Congress that any federal restructuring law should be secondary to state plans, and that any mandate regarding state participation in deregulation will be appealed. Other low-cost states have started to drag their heels regarding deregulati= on, even if they have not officially joined LCESI. Iowa, for instance, recently decided that it won't even pursue the issue of deregulation during the 2001 session of its legislature, upon the urging of the state's largest utility, MidAmerican Energy. New Mexico, which had previously approved a start date of Jan 1., 2001, for electric competition, now has delayed that start date until Jan. 1., 2002, to further investigate the impact that competition will have on the state. On the other hand, two states that are moving forward with their Jan. 1 start dates=01*Illinois and Ohio=01*continue to watch California closely bu= t think such problems will be averted in their own states. Ohio points to the fact that its rate freeze won't be lifted for five years, which will protect residents from the kind of price spikes now hurting customers in San Diego. Illinois customers also will benefit from a longer rate freeze and the fact that regulators in the state=01*having watched problems regard= ing supply materialize in California=01*allowed for incumbent utilities to dive= st of their power plants, but did not mandate it. Thus, importing power from the wholesale market won't be as necessary in Illinois as it is in Californ= ia. However, between the 23 members of LCESI and the approximately 24 states that have adopted some form of a restructuring plan, the United States is almost evenly divided with regard to states that would or would not be participating in deregulation. But, realistically, would states even be allowed to "opt-out" from electric competition? Perhaps this might work on the wholesale market, but ultimately I cannot see half of the U.S. state= s retreating from retail competition if the other half is participating. When educated properly about the true benefits of competition, electric customers=01*especially industrial and commercial customers=01*will push fo= r competition within their states or go to states where they can choose their energy provider. In addition, because of the way the nation's transmission grid is structured, it would be near impossible to transport power any great distance if states along the way refuse to grant access to their transmission lines. Moreover, perhaps it is not entirely wise to use California as a test examp= le for how deregulation will work nationally, as the LCESI is now attempting to do. First, California clearly made some mistakes in its own restructurin= g plan, not the least of which was the combination of mandating divestiture and not allowing new plants to be built, ultimately leaving the state with power supply problems. But other states are learning from these mistakes and developing better restructuring plans. Second, states such as Pennsylva= nia have adopted longer periods for rate freezes and stranded cost recovery, thus protecting customers from price spikes for a longer period. Third, deregulation in California has only been in effect for two and half years. To write it off as a "failure" without allowing this huge system to work out its own kinks is a mistake. =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D RCI is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other ConsultRCI.com information products including e-commerce and telecom in the electric utili= ty industry. If you would like to refer a colleague to receive our free, daily IssueAler= ts, please reply to this email and include their full name and email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert Sincerely, Will McNamara Director, Electric Industry Analysis wmcnamara@consultrci.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D See RCI's newest Telecommunications InfoGrid at: http://www.consultrci.com Find out about RCI's exclusive products and services at: http://www.consultrci.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D RCI's IssueAlerts are compiled based on independent analysis by RCI=20 consultants. The opinions expressed in RCI's IssueAlerts are not intended to predict financial performance of companies discussed or to be the basis for investm= ent decisions of any kind. RCI's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its 60-year existence and long-standing reputation as an expert on energy issues. Copyright 2000. The Reddy Corporation International If you do not wish to receive any further special offers from RCI, please reply to this message and in the body of the email type "remove."
|