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