[BETA] Fortnightly

On January 1, 1998, California will "deregulate" the state's electric utilities. The Western Power Exchange (WEPEX) and the independent system operator (ISO) will start up, creating an open market for wholesale power.

Elizabeth A. Moler, chair of the Federal Energy Regulatory Commission (FERC), says she'll be there: "We'll all be celebrating the deregulation of electricity in California, on January 1, 1998, at the Rose Bowl."

Take It or Leave It

"If it comes down to a take-it-or-leave-it decision, then my advice is to take it."

William W. Hogan, research director for the Harvard Electricity Policy Group, touts WEPEX and the ISO as the quickest route to deregulation. He led a parade of notables who trundled down to Washington, DC, on a hot day in August to testify at the FERC's technical conference on governance, market power, and transmission pricing for WEPEX.

Others flew in from the big three investor-owned electric utilities (IOUs) (Pacific Gas and Electric Co., Southern California Edison Co., and San Diego Gas and Electric Co.), municipal utilities, advocacy groups, and even a gas distributor, Southern California Gas Co. (SoCalGas). Their attendance marks the end of the love fest at the California Public Utilities Commission (CPUC).

Hogan remains uncompromising: "The combination of bid-based economic dispatch, locational marginal-cost pricing, transmission-access charges, and transmission congestion contracts provides a system that meets the FERC's test."

Not everyone agrees.

"The [California] legislature has not bought into all of this," warns Jan Schiori, general manager at the Sacramento Municipal Utility District (SMUD). "They are very concerned about the CTC [competition transition charge], stranded investment, and whether rates are going to go down."

Eric Woychik, representing the Utility Consumers' Action Network (UCAN), has little faith: "Except for California's IOUs, who need a reference point to determine the CTC, the power exchange [WEPEX] has no major constituency that supports it."

A Wall Around California

One of the most interesting questions concerns the pricing of electric transmission into and out of WEPEX.

As I understand it, a three-way battle has erupted between the major IOUs, the munis, and SoCalGas. The IOUs favor a single, utility-specific charge to gain access to the entire ISO system, plus charges for line losses and congestion. The municipal utilities reportedly want a two-part access fee: a single regional rate to aggregate the regional transmission facilities of the IOUs, and a separate local rate differentiated by utility. One source said that idea might serve as a "very good goal in the long run. But in the short run, you end up with significant cost shifting. It would cost IOU ratepayers a lot to absorb the embedded cost of the munis."

Then you have SoCalGas, which insists on a mileage-based transmission tariff to block Midwest utilities from exporting cheap, coal-fired power to California to displace gas load that SoCalGas now sells to power producers. According to Fred John, senior vice president of Pacific Enterprises, the parent corporation of SoCalGas:

"If you end up ignoring distance questions, it will mean more coal-fired generation coming into California. Our studies indicate a possible loss of 50 billion cubic