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Collision or Coexistence: The FERC, the CPUC, and Electric Restructuring

Fortnightly Magazine - October 1 1995

(QFs) outside the bid sequence. And that's a big chunk: In the Pacific region generally, 56 percent of electric energy comes from hydro, 15 percent from nuclear, and 19 percent from gas-fired plant, mainly in QFs. Thus, on a regional basis, over

90 percent of generating capacity will fall in categories that will constitute the base load of the pool outside the context of the bidding scheme. Moreover, the Pacific region currently suffers from substantial surplus capacity. Given these factors, the quantity of demand open for bid may prove too small to forge a market price.

In the short run, the wholesale price might come in too low, not too high. The perception persists that out-of-state generators will attempt to dump excess capacity into the California market at low incremental prices. Utility generators, flush with CTC payments, may tolerate very low wholesale pool prices to drive existing independent generators out of the market and forestall new entrants.

Finally, while California's transition-cost recovery plan is more innovative than the FERC's, it may still generate sufficiently high costs that restructuring creates a "zero-sum" game: high CTC charges raise rates and postpone any consumer benefits from competition. Moreover, the CTC could encourage an accelerated "fire sale" of marginal generating plants (em attenuating utility market power and raising stranded costs.

Nevertheless, the bottom line favors the broad consensus that something must be done to cut the cost of electricity in California. Nations throughout the world have implemented industry structures similar to that proposed by the CPUC's majority proposal, and those structures, in the main, have worked. They have trimmed prices while accommodating private contractual relationships. PoolCo's most vocal critics may fear that it will work too well. To the extent that the wholesale pool makes prices transparent, the role of marketers and marketmakers will shrink.

As the details are addressed, no one should forget that the CPUC initiated the electric restructuring movement. Its proposal offers savings for all consumers, but candidly acknowledges the various hurdles that lie in the way. t

Sheila S. Hollis is the senior partner at Metzger, Hollis, Gordon & Mortimer, representing numerous players in domestic and international energy matters. She is a professional lecturer in energy law at George Washington University Law School, chair of the ABA's coordinating group on energy law and a member of the ABA's house of delegates. She is past president of the federal energy bar and served as first director of enforcement at the FERC. Widely published, Mrs. Hollis is a recognized expert in energy law and policy.

Stephen L. Teichler is a partner at Metzger, Hollis, specializing in domestic and international energy law. He has represented a broad spectrum of power-related entities in regulatory, contractual, and litigation matters. He is also a veteran of the FERC's natural gas restructuring initiative. Prior to joining the firm, Mr. Teichler was a partner in the Washington office of Baker & Botts.PoolCo Pressure PointsComments highlight some key policy questions emerging in the California debate:

. Participation. Should muni utilities surrender all G&T to the ISO to buy from pool?