Enron Mail |
----- Forwarded by Cindy Derecskey/Corp/Enron on 08/25/2000 04:00 PM -----
"Martin, Kim" <martinki@fleishman.com< on 08/25/2000 03:51:17 PM To: "'mark.palmer@enron.com'" <mark.palmer@enron.com< cc: Subject: fyi Didn't know if you saw this column in today's LA Times, but he makes some good arguments... < JAMES FLANIGAN: Simple Steps May Ease Self-Inflicted < Electricity Woes < Los Angeles Times -- August 25, 2000 [Return to Headlines] < < < Publication Date: Friday August 25, 2000 < Page C-1 < Los Angeles Times (Home Edition) < Copyright 2000 / The Times Mirror Company < By JAMES FLANIGAN < < Let's be clear, the fact that the state botched the job of < deregulation to begin with is one reason California's electricity market < is such a mess. < < But failure to build a single new power plant in the state < even as California's economy expanded its use of electricity is the basic < cause of today's shortages and soaring prices in San Diego, Orange County < and other areas. < < Still, some simple steps can be taken by regulators, < legislators and Gov. Gray Davis to provide immediate relief. < < The state's major utilities should be free to buy power < wherever they can get it. They should not have to buy exclusively from the < Power Exchange, the Pasadena-based power pool that was set up by the 1998 < deregulation to achieve auction-based prices for roughly 80% of the < state's electricity. < < Approval should be expedited for adding smaller generating < plants that supply power at times of peak demand. That could alleviate a < tight supply-demand situation over the next year or two while larger < plants are built. < < Long term, the state needs to speed up the approval process < for building new electricity plants. The state also should force utilities < to invest in the still-regulated system of power transmission lines, which < now has weaknesses in the San Diego and San Francisco areas. < < Perhaps the most glaring fact about California's electricity < problem is how few companies have stepped up to supply power to this < enormous market, the nation's biggest. Only 15 or so suppliers, including < federal agencies, the state's own utilities, municipal companies and < private generating firms, supply power to California's system. < < By contrast, Pennsylvania, which has an electricity market < less than 12% the size of California's, has 130 separate suppliers of < electricity today, reports John Quain, chairman of that state's Public < Utility Commission. < < It's no coincidence that Pennsylvania has seen monthly < electric bills drop 3% on average since deregulation. "It's worked out < terrifically," Quain says. < < What did California do wrong? It allowed the state's major < utilities--Pacific Gas & Electric, Southern California Edison and San < Diego Gas & Electric--to recover 100% of their unrecovered or "stranded" < costs for nuclear and hydroelectric plants and for past power purchase < schemes mandated by the California legislature to encourage alternative < sources of energy. < < Then California's legislators told the utilities to sell < their conventional power plants to private generating companies, all of < which would sell their power to a central Power Exchange. < < The California scheme was flawed, at once over-regulated and < yet commercially clueless in not foreseeing trouble from a single power < pool fed by only a handful of suppliers. < < How did Pennsylvania do it? It allowed the state's utilities < to recover no more than 67% of their stranded costs for nuclear < plants--reasoning that company shareholders should accept some of the risk < of their investments. And rather than set up a central power exchange, the < state allowed its utilities and newcomers to the state's electric system < to compete for business. < < Competition, after all, is what deregulation is supposed to < encourage. And competition is not happening in California. < < It should be noted that the summer is relatively cool in the < East this year and extraordinarily hot throughout the West. All the < Western states are suffering electricity problems. That's another reason < for California's trouble. < < Normally, 28% of California's electricity comes from U.S. < and Canadian government systems and from utilities in Oregon and < Washington, Nevada and Arizona. But this year, because of lower < hydroelectric supplies and higher demand from booming economies in those < other states, power for California is in shorter supply and more expensive < when the state can get it. Now there are accusations that some suppliers < to California have taken advantage of their market leverage to extract < premium prices for power. < < There's nothing illegal in angling for a better price or in < using futures markets and other trading techniques, as some generators may < have done. If any stepped over the line to illegal collusion, federal and < other investigations will determine the facts. < < But who gave the generators the market leverage to exploit < us? The California regulators, legislators and utilities did. Told to sell < their generating plants in 1998, the utilities sold dozens of plants in < package deals of two and three to single buyers. They received premium < prices from buyers such as AES Corp., Duke Energy, Southern Co. Reliant < Energy, Dynegy and NRG. The premiums were paid for the market leverage < that multiple plants afforded the buyers. < < Nobody in the utilities reckoned that they were handing < market leverage to potential commercial adversaries. Nobody in the < Legislature or the regulatory staffs reckoned that the central Power < Exchange could be held up by market leverage. < < As outsiders often say about Californians: "Maybe it's the < sunshine makes them slow." < < (END) < < 05:23 EDT August 25, 2000 < Copyright , 2000 Times Mirror Company < < < <
|