Calif PUC president would
assure enough power
while fostering market

Marketers and large consumers wonder how the new California will provide resource adequacy before a blackout hits and will they do it in a way that destroys the new marketplace as it unfolds?
     We asked a key player in building the new market, PUC President Michael Peevey.
     The IOUs seem to be leaning towards a resource adequacy plan that will return California to yesteryear, we observed, thinking of Southern California's Mountainview generation plant.
     "That's my theme," said Peevey.
     "Some here in this state would go back to the past," he added.
     His idea is for the old and the new to coexist in a hybrid market.
     He, Gov Arnold Schwarzenegger and some others want to create a core/non-core market similar to natural gas.
     For the residentials and small businesses (core) supply would come from competitive "open and transparent bidding process" to build new generation.
     He doubts the IPPs will have the strength to do all the needed building given today's environment and utilities should be allowed to build some too but he is against having all new generation come from utilities.
     Southern California Edison's Mountainview plant was a one-time thing, he assured, where AES was unable to make good and the PUC came across the current opportunity.
     For the core market it's easy in Peevey's view to forecast market growth.
     "It grows at 2-3-4%/year," he said.
     The commission can chart that and decide how much comes from renewables, energy efficiency and demand response as well.
     What's more challenging is who's going to build for the non-core market where the demand growth is harder to forecast, he explained.
     Peevey knows as the man who built America's largest independent marketing firm (NewEnergy Ventures) that from 1998 through 2000 before the crisis statewide on average about 14% of utility customers migrated to marketers such as NewEnergy and its competitors.
     No one knows what competition will create because movement from the utility depends on marketer enticements and other unknown dynamics of a marketplace and "that's good," he said.
     The PUC can't determine the exact C&I non-core market size to build for.
     He's leaning towards creating "some sort of capacity market like you have in NEPOOL ... New York and PJM.
     One idea being considered?
     Capacity tags.  Where a 100-mw retail chain in California has a contract for a number of years with a new service provider then "after say five years goes someplace else," the capacity "would go with the retail company and it would be like a tag it would have.
     "That's a concept."
     Peevey isn't sure how to make that work, he said.
     He's "intrigued" with the concept of underwriting an IPP's investment so it can borrow money for the non-core market.
     He has heard that Consolidated Edison has done that.
     "So we're groping frankly for ways to get out of the conundrum that is implicit in the question you asked -- how do you have resource adequacy and vibrant retail competition.
     Power for the core market would be bought in an auction?
     "Yes, with some other transparent competitive bidding process that everybody can see," he replied, so all can agree that the bidding isn't "an unfair inside job."

QUOTE OF THE DAY:  There's no way the IPP industry can build all the generation this state needs or this country needs right now. Most of them are on their backs financially and the utilities can't build it all either so we're going to have a blend.

Peevey cites the San Diego example where "an observer makes sure that the whole process was done on the up and up."
     The observer came from "a law firm without any ties to SDG&E, Calpine or Sempra."
Sempra did win the bid to build new capacity.
     Peevey would prefer having "the whole damn bidding process run by an outside party."
     (Published in Restructuring Today on May 13, 2004)