Calif Pwr Woes
Tuesday, September 12, 2000 08:15 AM	

	
	
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	(This article was originally published Monday) 
	WASHINGTON (Dow Jones)--The Federal Energy Regulatory Commission has limited 
authority to address flawed electricity markets in California and alleged 
price gouging by power producers, but will act to overhaul the state's 
wholesale power markets if necessary, FERC Chairman James Hoecker told a 
congressional panel Monday. 
	The commission was ready to act once the results of an expedited staff 
investigation of problems affecting power markets in the U.S. West becomes 
available, Hoecker said in testimony presented to a San Diego field hearing 
of the House Commerce Committee's energy panel. 
	"If we need to fix market rules or market structures within our jurisdiction, 
we will do so," Hoecker told lawmakers. And if price gouging is occurring "as 
some have alleged," he added, "we will respond accordingly, by revoking 
market-based rates or otherwise." 
	However, Hoecker stressed that the commission's authority is limited under 
the Federal Power Act. 
	"The commission has limited ability to relieve the immediate customer crisis. 
Important aspects of this problem are a state responsibility, such as 
authorizing construction of new generation and transmission facilities," 
Hoecker testified. 
	The commission can't act to limit prices charged by power providers "until we 
have a record supporting such action," he said, referring to the results of 
the pending staff investigation. 
	Further, he said, the law bars FERC from ordering retroactive refunds to San 
Diego Gas & Electric Co. for the power it purchased this summer to serve its 
retail customer base. 
	Hoecker testified before the House Commerce Committee's Energy and Power 
Subcommittee, which is looking into the supply shortages in California this 
summer that have forced San Diego electricity consumers to pay twice as much 
for power as they did a year ago. 
	State Mkt Structure Blamed For Crisis 
	The hearing comes after much wrangling at FERC, as SDG&E, a unit of Sempra 
Energy (SRE, news, msgs), sought an order setting price caps for power bid 
into the state-sponsored electricity exchange, and power producers sought an 
order allowing cost recovery for lost opportunity sales if the state's 
independent grid operator curtailed sales outside California, where price 
controls don't apply. 
	FERC hasn't yet responded to the producers, and deferred action on SDG&E's 
bid for price controls until the staff investigation is completed. But it 
left in place an order allowing the independent system operator to limit the 
price it pays for power, which acts as a de facto cap on prices bid into the 
power exchange. 
	Hoecker, while withholding judgment pending the staff probe, appeared to 
place much of the blame for this summer's crisis with the state-mandated 
market structure, which left San Diego consumers subject to spot-market 
volatility. 
	And he appeared to suggest that FERC's order directing utilities to transfer 
transmission assets to control of large regional transmission organizations, 
or RTOs, will offer an opportunity to develop a regional solution to the 
power-supply problem. 
	FERC deferred to California in restructuring the wholesale market in 
California because its experience with new market institutions such as power 
exchanges and ISOs was limited, Hoecker said. 
	Other states, such as Pennsylvania, were "less prescriptive than California 
in telling the commission how their wholesale markets should operate," 
Hoecker noted. 
	Now, with FERC's Order 2000 encouraging formation of RTOs, "the commission is 
in a very different posture with respect to the structure of wholesale 
markets," he said. 
	"Large regional markets can be made to work effectively," Hoecker told the 
lawmakers, citing the Pennsylvania restructuring as an example. 
	Other witnesses were more forceful in criticizing the state-mandated market 
structure. 
	By requiring the state's three investor-owned utilities to purchase all their 
electricity from the power exchange and limiting their ability to hedge price 
risks by entering into long-term fixed-price contracts, the state left 
consumers subject to volatility in the state-mandated spot market, said 
officials with Enron Corp. (ENE, news, msgs) and Reliant Energy (REI, news, 
msgs). 
	California's market structure "placed no economic incentives on the default 
utility providers to look out for the costs that are ultimately passed on to 
their consumers," Reliant's John Stout testified. 
	"San Diego's experience offers the Congress an unparalleled opportunity to 
learn from a bungled attempt at deregulation," said Michael Shames, executive 
director of Utility Consumer's Action Network. 
	Shames and other witnesses warned the congressional committee that 
California's electricity crisis is likely to occur in other regions of the 
country unless steps are taken to free up interstate trade in power and allow 
FERC to better police markets. 
	"California is just the latest problem area in U.S. power markets and, unless 
policymakers act quickly, it will not be the last," said Enron Corp. (ENE, 
news, msgs) Steven Kean executive vice president. 
	"Unless Congress and FERC are willing to address the interstate issues that 
are beyond the jurisdiction of state legislators and regulators, I predict 
that our experience in San Diego is indicative of what others will encounter 
in trying to create a competitive electricity market," said Edwin Guiles, 
Sempra's president of regulated operations. 
	"This electricity crisis is not a California-only problem," said Rep. Brian 
Bilbray, R-Calif., who represents San Diego and requested Monday's hearing. 
	"We will continue to be in this mess if state and federal officials don't 
work together to find long-term solutions to the flaws in the marketplace," 
Bilbray said. 
	-By Bryan Lee, Dow Jones Newswires, 202-862-6647, bryan.lee@dowjones.com 
	Quote for referenced ticker symbols: EIX, ENE, PCG, REI, SRE
	
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