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Fortnightly Magazine - October 1 1996

based upon the residentials' smaller share of generation.

"It's wrong to use the full-EPMC allocator to bill stranded generation to residentials," says Woychik. "Instead, you should use the EPMC allocation factor that applies to generation only."

Goldberg sees it differently. He notes that the bill's original language would have locked in a "full EPMC" allocation, but that lobbying efforts changed the wording to preserve the PUC's right to change the allocation. "The legislature made its views pretty well known on the unfairness of cost allocation to ratepayers," says Goldberg.

The deal still appears questionable to Woychik.

"The law promises a 10-percent rate cut," he notes, "with a 20-percent reduction in five years. I don't think that's a deal at all. It will be funded by a state-financed loan, to be paid back eventually by residential customers. On the other hand, natural gas prices are declining. IPP prices will fall at the 'QF cliff' (above-market, fixed-price contracts will expire soon). In 10 years, you've got a rate decrease anyway."

"From our point of view," says Hoge, "The deck was stacked. The large customers were not going to stand for something that was not at least as good [for them] as the PUC decision."

Reliability (Out of Touch)

The California bill contains some peculiar, perhaps contradictory, provisions. Foremost is reliability.

On one hand, AB 1890 directs the governing board for the independent system operator (ISO) to "assess the adequacy of current and prospective institutional provisions for the maintenance of reliability," and to conduct an "independent review and assessment" of reliability criteria followed by the Western Systems Coordinating Council (WSCC). At the same time, however, the ISO must employ planning and operating reserve criteria "no less stringent" than those set by the WSCC and North American Electric Reliability Council (NERC).

Woychik suggests that organized labor won the "no less stringent" language in an effort to preserve jobs by codifying strict reliability standards.

"We sort of won and lost on this," says Woychik. "I was happy to see the ISO review of WSCC, but

the other language bothered me. My view is that these [reliability] rules are old, out of touch, and expensive."

Woychik notes that even some in the industry would prefer a relaxation of reliability standards that would free up plant for open-market sales. Says Woychik: "Northern States Power is very unhappy about the standards imposed by the Mid-Continent Area Power Pool, which it feels requires too much spinning reserve that could be sold somewhere else."

Another plum for organized labor is a clause designed to preserve union jobs. The clause forces buyers of divested utility generating plants to contract with the selling utility or successor corporation to operate and maintain the facility for at least two years.

"When I talked with the utilities and IPPs they all rolled their eyes about this," says Goldberg. "It's a real problem, interfering with the market, and working as an impediment for capital to come in and to buy up these plants."

Goldberg also faults "anti-slamming" language added to the bill to protect consumers from abuses prevalent