Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Financial News

Fortnightly Magazine - July 15 1995

reduce electric rates, perhaps dramatically so. And while the CTC is intended to diminish over time, the CPUC might very well use the CTC as a convenient mechanism to fund its cherished programs in the future.

The price that ultimate customers pay for electric power would be the sum of the pool price, the CTC and any other adders prescribed by the CPUC, and a performance-based charge for transmission and distribution services. The Proposed Decision obviously goes to great lengths to mollify a broad spectrum of stakeholders and to distribute the benefits of any savings from the pool to customers of all sizes. The add-ons are used to obtain funds to placate special interests, and all customers have the same access to the pool. However, all access would be through a utility intermediary during at least the first two years of the pool's operation.

While the Proposed Decision makes provision to meet disparate stakeholder needs, it is not clear that it can satisfy their competing demands. Customers' desire for low rates obviously conflicts with the collection of funds by the CTC. If customer resistance should shrink the size of the CTC, the various CTC beneficiaries would end up fighting each other for what remains. The utilities are not likely to fare very well in such a battle, as estimates of stranded costs are highly subjective and hard to defend. Estimates of potential stranded costs for California's three major utilities range from minus $8 billion to plus $32 billion, a spread of $40 billion. Thus, despite the promise of the CTC, actual stranded-cost recovery remains problematic.

How Does it Differ?

The principal difference between the Blue Book and the Proposed Decision is the shift from reliance on consumer choice and competitive market forces to a government-sponsored spot market.

Under the Blue Book proposal, consumer choice through direct access would enable the electric generation business to operate on the unregulated terms typical of most industries. The proposal was based on the conviction that institutional arrangements "necessary to support direct access and retail competition in the electric services industry already exist." However, the Blue Book also showed an awareness that competitive forces need nurturing to prevent the abuse of market power. Nurturing involves the development of an effective spot market for electric power.

The CPUC's shift from advocating market forces to proposing a pool does not reflect a conviction that a spot market in electric power could not develop without government sponsorship. To the contrary, the shift results from political opposition by stakeholders who fear the changes market forces would bring. With direct access, the price of electric power would be equal to the spot price plus performance- based transmission and distribution charges. Gone would be the watering trough for anything that did not meet the market test of efficiency. There would be no convenient ways to finance utility-administered social, conservation, and environmental programs. The prospect of market-based pricing also cast a shadow over the recovery of uneconomic QF costs, uneconomic utility plant investment, and deferred regulatory assets. Finally, direct access did not have broad