Generators' plan for California has AB 1890 aroma
Why
would an openly free-market governor back a plan to take California back
to the Middle Ages?
Neither the governor nor his energy advisor, Joe Desmond, has done
that although Dow Jones' early version hints that they have.
The Coalition for California Policy Reform includes AES, Duke, NRG
Energy, Mirant, Dynegy and Reliant and later added Southern California
Edison and Pacific Gas & Electric.
The pact gives the generators long contracts in return for selling
out competition's future in the Golden State.
The deal gets utilities back in the generation business with the
hope that after 10 or 15 years, the threat of competition will have been
snuffed out.
How does Sempra feel about it?
Livid.
San Diego Gas & Electric (Sempra) wasn't even invited to the talks
once the coalition sensed Sempra's views of the plot.
Coalition firms did some smart things to sweeten the offer:
• Lift the price cap;
• Reform the must-offer rule;
• Create a capacity market (like the New England LICAP), and
• Adopt resource-adequacy requirements.
Then add a non-bypassable charge so that everyone chips in to pay
Edison's resource adequacy, even shoppers, though retailers are required
to meet their own adequacy requirements.
And with the four comes a paradigm shift back to monopoly utility
organization.
Forget the ugly way California power users had to pay for stranded
costs -- paying the big three the value of their companies via the CTC
(competitive transition charge) but the IOUs were then allowed to keep
the companies.
Now the game plan is to create lots more stranded cost by allowing
utilities back into building generation.
Remember that market builders wanted utilities out of generation
fearing they would favor their own generation over that of their
competitors.
We've seen lots of that in other states where utilities are allowed
to own generation.
What about FERC?
It's a new ballgame there until we find out where the new chairman
stands.
Would FERC approve vertical reintegration of the big three?
It's hard to say. The new FERC is to get another Democrat or
independent and a new Republican.
And we saw close-up the snow job California pulled on FERC (we were
there) when the commission approved AB 1890, the locally designed state
recipe for disaster -- just to be polite.
California has the largest and most virulent congressional
delegation that sometimes gets its way with the commission.
But are generators so desperate for cash and long-term pacts that
they would agree to such a hideous death for competition until, Lord
willing in 2015?
The view that retail competition would be tried at the end of a
decade was very upsetting to Norman Plotkin who speaks for marketers
(Alliance for Retail Energy Markets).
"That's ludicrous," said Plotkin, because utilities will be
vertically reintegrated.
In his view fears of cost shifting and stranded cost for load
migration "will preclude there ever being a retail market again."
The plan "will create a situation of market power that the
generators would never have dreamed of."
Stop and think, we suggested about the horror and ugliness of
California power users having to pay off stranded cost about equal to
the market capitalization of the big three over a decade via the CTC
then having to pay it off again while IOUs get to keep the companies.
How many times should the public pay some $43 billion and get
nothing in return?
We know life has been hard of late for our friends at AES, Duke,
NRG Energy, Mirant, Dynegy and Reliant.
While marketers back the coalition on lifting the price cap, reform
of the must-sell rule, a capacity market and resource adequacy, they
sure don't back getting rid of the market for 10 years.
Originally published in
Restructuring Today on
August 23, 2005 |