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The Power Exchange: California Goes Competitive

Fortnightly Magazine - March 1 1996

included some careful ambiguities and so could be interpreted in different ways by different parties. But now the CPUC has turned the ambiguities into sense, and has set out to protect the smaller customers.

The Order shows leadership. The CPUC is exercising authority that it does not have. And while the Order is ostensibly about California, in reality it will restructure the entire market in Western North America. If the PoolCo works, it will spread across jurisdictions.

Two key questions remain: First, will the Order stick, or will key aspects be overturned by the FERC (unlikely), challenged in the courts (possibly), or upset by the

California legislature? Second, will it be possible by 1997 to negotiate the pool rules and the many other complex issues of regulation, governance, finance, and system

operation? If the Order sticks, radical change will follow (em only time will tell whether such change will mark progress. t

Alex Henney was formerly a director of London Electricity. He was involved in the privatization of the electricity supply industry in England & Wales. He set up EEE Limited, and has advised electric companies, governments, and regulators in a number of countries, including the United States and Canada.

1. "California's Electric Services Industry: Perspectives on the Past, Strategies for the Future," Cal. Div. of Strategic Planning, Calif. PUC, Feb. 1993.

2. Order Instituting Rulemaking on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, Decision 95-12-063, R.94-04-031, I.94-04-032, Dec. 20, 1995, as modified, Decision 96-01-009, Jan. 10, 1996 (Cal.P.U.C.), published at 166 PUR4th 1.

3. See, "Electric Restructuring and the California MOU," by Alex Henney, Public Utilities Fortnightly, Oct. 15, 1995, p. 44.

4. The Order makes it very clear that when transmission constraints occur, the transactions will be scheduled along with redispatch "to meet the twin objectives of assuring operational reliability and achieving least-cost use of the system." To this end, "the ISO will determine the locational [viz hub-and-spoke] marginal costs, incorporating the costs of generation, losses, and congestion that will define the market-clearing prices for the Exchange and the price of transmission use for the bilateral transactions. The marginal costs of redispatching to provide an increment of load at each location will define the purchase and sale prices through the Exchange." The ISO will notify bilateral traders and the Exchange of the prices, and accept increment or decrement bids from the bilateral traders and supply-and-demand bids from the Exchange to determine transactions across constraints.

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