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California Electric Restructuring Update

Fortnightly Magazine - July 15 1997

plants under the industry restructuring program.

The commission found that the independent system operator, with oversight by the Federal Energy Regulatory Commission, would play the primary role in assessing system reliability needs. The commission described its own role as "a supportive one." It said its main duties in the area would involve consulting with the ISO and participating in FERC proceedings in a continuation of the "cooperative federalism that has characterized industry restructuring to date."

It also ruled that proponents of performance-based rate plans that include shareholder earnings incentive mechanisms must now show how such allowances are required to further the goals and objectives for electric restructuring.

The commission explained in April that its 1996 restructuring policy decision to allow utilities to retain profits up to 150 basis points above their authorized return on distribution rate base applies only to those fossil plants that are primarily needed for reactive power/voltage control. Re Southern California Edison Co., et al., Application 96-07-009, Decision 97-04-042, April 9, 1997 (Cal.P.U.C.).

The commission also initiated a rulemaking to establish standards of conduct governing relationships between the state's energy utilities (both electric and natural gas) and their affiliated, unregulated marketing companies. The rules will cover utility interactions with affiliates in energy or energy-related activities, but not those in areas unrelated to energy services.

Groups requesting the investigation, including Enron Capital and Trade Resources, and several consumer groups, also asked the commission to require the utilities to conduct all nonregulated activities through their affiliated companies rather than by utility personnel subject to the affiliate standards. The commission said that an investigation was needed due to fundamental changes under way in both the electric and gas markets. It found that market players including regulated utilities were taking responsive action and that several new ventures and mergers had been recently proposed.

The commission said that existing rules must be reexamined to determine whether they must be modified properly to address the potential for self-dealing and cross-subsidization issues that might arise from electric utility restructuring. Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, R.94-04-031, Decision 97-04-041, April 9, 1997 (Cal.P.U.C.).

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