Revisiting "the genius of the marketplace": Cures for the western electricity and natural gas crises

Electricity Journal

Volumn 14, Issue 5, 2001, Pages 11-18

  Cavanagh, Ralph ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

COMMERCE; FINANCIAL DATA PROCESSING; NATURAL GAS;

CALIFORNIA; ELECTRICITY RESOURCES; EXPOSED TO; GAS CRISIS; MANAGEMENT FUNCTIONS; PORTFOLIO MANAGEMENTS; RESOURCE PORTFOLIO; RETAIL CUSTOMERS; SPOT MARKET VOLATILITY;

INVESTMENTS;

EID: 0035373455     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(01)00203-2     Document Type: Article

References (37)

1. 1. See Rebecca Smith, Probe of California Power Prices Begins, But New Plants Aren't Seen as Solutions, WALL ST. J., Sept. 11, 2000 ("[t]he average cost of power, per megawatt hour was $185 in August, $117 in July and $167 in June"). A price of $1.50 per kWh cleared the California Power Exchange (PX) day-ahead market for deliveries at 6 AM on Dec. 13, 2000, according to the PX Web site (http:// www.calpx.com). The weighted average cost of system power purchased through the PX from Nov. 20 through Dec. 20, 2000, was 28 cents per kWh; for the period Dec. 20 through Jan. 22, 2001, it rose to 29.4 cents per kWh. These weighted averages are reported by Green Mountain Energy, in the form of retail electricity bills received by the author for those months.
2. 2. This reflects the Henry Hub natural gas options contract prices listed on http://www.nymex.com through March 2002, as of April 5, 2001.
3. 3. These data appear at http:// www.energy.ca.gov/electricity/ consumption-by-sector.html (May 30, 2001).
4. 4. See Northwest Power Planning Council, Study of Western Power Market Prices: Summer 2000, Oct. 11, 2000, at 15. The report notes that "by far, the most rapid growth" occurred in Arizona, New Mexico, and southern Nevada: "[a]lthough this area only accounted for 12 percent of WSCC summer peak loads in 1995, it accounted for 47 percent of their growth from 1995 to 1999." Id. at 14.
5. 5. See U.S. Department of Energy, MONTHLY ENERGY REV., Dec. 2000, at 99 (data reflect electricity end use); California consumption grew by 11 percent from 1990 to 1999, according to the California Energy Commission (supra note 3).
6. 6. Marla Cone and Gary Polakovic, Bush's Idea of Easing Smog Rules Won't Help, Experts Say, L.A. TIMES, Jan. 25, 2001.
7. X reductions at California generators, and noting that the five most polluting gas turbines in the Los Angeles air basin could cut emission rates by 65 percent "for costs of less than $1 million per unit").
8. 8. See California Energy Commission, http://www.energy.ca.gov/sitingcases/backgrounder.html (May 30, 2001).
9. 9. The FERC decision expressed "grave concern about the need for this capacity" and concluded that California utilities could not lawfully be required to execute the purchase contracts. Federal Energy Regulatory Commission, Order on Petitions for Enforcement Action Pursuant to Section 210(h) of PURPA, Docket No. EL95-16-00 (Feb. 23, 1995), at 26-27.
10. 10. For a continuously updated report on the status of siting proceedings at the California Energy Commission, see http://www.energy.ca.gov/sitingcases/ backgrounder.html (May 30, 2001).
11. 11. In the region drained by the Columbia River and its tributaries, precipitation for the four months beginning November 2000 was 49 percent, 57 percent, 40 percent, and 53 percent of average, respectively; February 2001 streamflows at the Dalles on the Columbia River were 49 percent of the 60-year average; federal hydropower generation for February 2001 was at least 4,000 MW below 1995-2000 averages; and the National Weather Service predicted that the year ending in July 2001 would bring "the second lowest volume runoff on record" at the Dalles (trailing only 1977). Bonneville Power Administration, Power System Data for the Week Ending March 2, 2001. The issue of reduced resource investment is addressed below in note 17.
12. 12. For a provocative treatment, see Robert McCullough, Price Spike Tsunami: How Market Power Soaked California, PUB. UTIL. FORTNIGHTLY, Jan. 1, 2001. The California Independent System Operator renewed formal claims of anticompetitive actions by generators on March 1, 2001. See also Tina Davis, Cal-ISO to FERC: Power Sales Reek of Market Power, Mar. 2, 2001, ENERGY DAILY, at 1 (ISO contends that "as much as $247 million or 21 percent of the real-time energy costs during December 2000 and $315 million or 63 percent of the real-time energy costs for January 2001 represent charges that may exceed just and reasonable levels").
13. 12. For a provocative treatment, see Robert McCullough, Price Spike Tsunami: How Market Power Soaked California, PUB. UTIL. FORTNIGHTLY, Jan. 1, 2001. The California Independent System Operator renewed formal claims of anticompetitive actions by generators on March 1, 2001. See also Tina Davis, Cal-ISO to FERC: Power Sales Reek of Market Power, Mar. 2, 2001, ENERGY DAILY, at 1 (ISO contends that "as much as $247 million or 21 percent of the real-time energy costs during December 2000 and $315 million or 63 percent of the real-time energy costs for January 2001 represent charges that may exceed just and reasonable levels").
14. 13. California Public Utility Commission Decision 95-12-063 (Dec. 20, 1995) as modified by Decision 96-01-009 (Jan. 10, 1996), at 8.
15. 14. Id., at 56-57.
16. 15. A full review of the portfolio management issues appears in the National Resources Defense Council (NRDC) initial response to the Commission's proposal, and in a report issued shortly before the Commission's proposal was published. See Opening Comments of the Natural Resources Defense Council and Comments on Balancing Public Policy Objectives in a Competitive Environment, June 7, 1994, at 2-3 and 7-10; Ralph Cavanagh, The Great Retail Wheeling Illusion (NRDC, March 1994), at 3-8. For an analogous and equally timely critique of the PUC's proposal, see V. John White, On a Cruel Sea, COALITION ENERGY NEWS (Sacramento, CA: Center for Energy Efficiency and Renewable Technologies, Spring 1994), at 2.
17. 16. A full review of the portfolio management issues appears in the National Resources Defense Council (NRDC) initial response to the Commission's proposal, and in a report issued shortly before the Commission's proposal was published. See Opening Comments of the Natural Resources Defense Council and Comments on Balancing Public Policy Objectives in a Competitive Environment, June 7, 1994, at 2-3 and 7-10; Ralph Cavanagh, The Great Retail Wheeling Illusion (NRDC, March 1994), at 3-8. For an analogous and equally timely critique of the PUC's proposal, see V. John White, On a Cruel Sea, COALITION ENERGY NEWS (Sacramento, CA: Center for Energy Efficiency and Renewable Technologies, Spring 1994), at 2.
18. 17. See AB1X (Keeley), available in full at http://www.assembly.ca.gov/acs/ acsframeset2text.htm (May 30, 2001).
19. 18. See Northwest Power Planning Council, Study of Western Power Market Prices: Summer 2000 (Oct. 11, 2000), at 13-14 (concluding that, while western peak loads increased by 12,000 MW from 1995 to 1999, generating capacity increased by only 4,600 MW and energy efficiency investment dropped substantially throughout the utility sector).
20. 19. The California PUC had plenty of encouragement, much of it - ironically and tragically - from politically potent industrial interests who have been particularly hard hit by recent increases in electricity rates.
21. 20. California Public Utilities Code §701.1. As NRDC noted at the time (supra note 15 at 3), the initial PUC proposal conspicuously omitted any reference to this statute. The first legislation to address portfolio functions in detail was the Pacific Northwest Electric Power Planning and Conservation Act of 1980, 16 U.S.C. §839 et seq.
22. 21. See 16 U.S.C. §839b and 839d.
23. 22. In a prophetic 1991 analysis, the Northwest Power Planning Council demonstrated as much when it quantified literally billions of dollars of potential benefits from centralized resource procurement, compared with disaggregated development across a regional utility system. See Northwest Power Planning Council, 1991 Northwest Conservation and Electric Power Plan, Vol. II, Part II, at 793-95 (1991).
24. 23. In 1999, Montana opened the way for a portfolio-services competition; the statute established the possibility that a new statewide cooperative or some alternative provider might replace the incumbent distribution company as the entity responsible for executing procurement contracts on behalf of customers who did not choose a different supplier. See Montana Code Annotated, Title 35, Ch. 19, §101; and Title 69, Ch. 8, §416 and §417.
25. 24. See California Energy Commission, The Energy Efficiency Public Goods Charge Report, Dec. 1999, at 12 (savings estimates cover 1975-1998).
26. 25. See http://www.energy.ca.gov/ releases/2001_releases/2001-01-03_new_standards.html (May 30, 2001).
27. 26. This legislation, enacted as SB1194 and AB995, is codified at §399 of the California Public Utilities Code.
28. 27. For thoughtful treatment of these and related issues, see the Web site of the Regulatory Assistance Project at http:// www.rapmaine.org.
29. 28. Public Utility Commission of Oregon, Order No. 98-191 (May 5,1998; approving "alternative form of regulation" based on proposal by PacifiCorp, the Oregon Department of Energy, the Citizens Utility Board, the Natural Resources Defense Council, and the Northwest Energy Coalition).
30. 29. This commitment appears in a stipulation that the Oregon Public Utilities Commission acknowledged as "in the public interest" in its order approving Sierra Pacific's acquisition of Portland General Electric. Order No. 00-702 (Oct. 30, 2000), Appendix C, at 4. PGE also agreed not to propose fixed charges "as a means of achieving the separation from kilowatt-hour sales," ensuring that customers' incentives to improve efficiency would not be reduced as a consequence of the pricing reforms. Id. 29. Letter from Pamela J. Fair, Vice President, Consumer Services, SDG&E, to Ralph Cavanagh, Natural Resources Defense Council, Jan. 31, 2001.
31. 30. Letter from Pamela J. Fair, Vice President, Consumer Services, SDG&E, to Ralph Cavanagh, Natural Resources Defense Council, Jan. 31, 2001.
32. 31. See Public Utilities Code section 739.10, which directs the Public Utilities Commission to ensure that "errors in estimates of demand elasticity or sales do not result in material over-or under-collections" of utility revenues.
33. 32. The gas-fired generation additions are described in California Energy Commission, supra note 8, the renewable additions were reported to me in a March 5, 2001, communication from Marwan Masri, Manager of Renewable Energy Programs for the California Energy Commission, and reflect the cumulative impact of renewable energy investments orchestrated by the Commission since 1998.
34. X and 0.03-0.07 pounds of PM for a new combined cycle gas-fired plant in California.
35. 34. See California Air Resources Board, Identification of Diesel Exhaust as a Toxic Air Contaminant, Aug. 1998; Risk Reduction Plan to Reduce Particulate Matter Emissions from Diesel-Fueled Engines and Vehicles, July 13, 2000, at 15.
36. 35. See California Air Resources Board, Identification of Diesel Exhaust as a Toxic Air Contaminant, Aug. 1998; Risk Reduction Plan to Reduce Particulate Matter Emissions from Diesel-Fueled Engines and Vehicles, July 13, 2000, at 15.
37. 36. For specific recommendations by the broad-based Campaign to Keep America Warm, see http://www.save-liheap.org.