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Fortnightly Magazine - July 1 1995

to PoolCo's bureaucracy, while public power companies such as Sacramento Municipal Utility District or the Los Angeles Dept. of Water & Power (not to mention out-of-state competitors like Tucson Electric Power, Sierra Pacific, or PacifiCorp) retain the option of playing inside or outside PoolCo.

Mike Florio, senior attorney at the San Francisco office of TURN (Toward Utility Rate Normalization), California's most prominent ratepayer advocacy group, worries about IOUs controlling PoolCo: "We're already buying as much cheap power from out of state as we can. If there's cheap power to be had, the utilities should be buying it now. So the fact that out-of-state utilities can bid into the pool might not make much difference. Anyway, transmission capacity limits the amount of imports."

Adds Florio, "It's the worst of both worlds. It's unregulated monopoly pricing. But that's not to say that we love Knight's proposal."

Jessie Knight's proposal would admit retail customers into the game as direct players physical energy market, but power marketers, brokers, and aggregators would get to play too. That's a key difference between Knight and Fessler. The California PoolCo allows financial hedging (retail customers can sign purely financial "contracts for differences" with individual utilities), but the physical market for energy is closed to marketers and brokers. Customers must take energy only from the utility. So PoolCo, while staunchly defended as necessary to manage physical dispatch and transmission ("electricity is different than other commodities"), carries with it an important side effect: It shields distribution utilities from competition with marketers and brokers. For a while anyway. On the other hand, Knight's direct-access proposal gives entry to marketers and brokers to aggregate load or otherwise procure physical energy on behalf of retail customers.

All this may change, of course. Fetter thinks that timing is a key element: "Both proposals end up at the same place. The pool will take a couple of years to get running, followed later by bilateral contracts. Knight's proposal jumps right to direct access, probably a couple of years too soon. Both sides would be better served to target the year 2000 for true competition and spend the next five years getting the politics out of the way."

Tirello forsees a period of uncertainty. "Everything is still up in the air," explains Tirello. "The commission staff hasn't got cohesive marching orders. The out-of-state utilities are backing off to wait and see."

What About Rates?

The Blue Book complained about California's high rates. Will PoolCo help? Scotto asks, "If the CPUC's restructuring (with full cost recovery) is valid, what costs are going away?"

Prudential's Abramson points out a weakness: "A competitive pool might bring down the cost of power. But the CPUC also wants to fully recover any lost value through the transition cost, which will keep rates high. California may lose ground to other states. There has to be some pain."

He continues, "Utilities aren't necessarily any better off, because they still have customers. They may still have to fight a war of attrition with their large customers, who retain the flexibility that they've always had."

And while