Reforming California: Reflections on the Morning After
With few regrets, a regulator steps down from the PUC, still touting his brand of electric competition.
I'm proud to have been an author of the first chapter of a book still being written.
Today's electric industry is more competitive, more reliable, more efficient, and more dynamic than it was six years ago when I joined the California Public Utilities Commission. However, the future of the industry has not been set. The steps taken over the next several years will determine the outcome of electric competition.
Six years ago, as President Bush signed the Energy Policy Act of 1992, the California commission asked its Division of Strategic Planning to study competitive conditions in the electric industry. That request led eventually to the "Yellow Book," a report known in more formal terms as California's Electric Industry: Perspectives on the Past and Strategies for the Future. In its report, the DSP outlined four possible options for the commission. One was identified simply as "Strategy D: A Restructured Utility Industry." That option is not that far off the mark from where we are today.
These two events, EPAct and the Yellow Book, would fundamentally and permanently alter the electric utility industry.
Nevertheless, when I joined the commission five years ago, the idea of "retail wheeling" (as direct access was then known) was not yet acceptable as cocktail party chatter amongst the electricity intelligentsia. Such musing was often denigrated by industry experts (em patronized as an intellectual exercise and ultimately dismissed as the folly of people who did not understand the business.
Yet today, there is retail competition in California.
Dispelling Old Myths
In California we have filleted and salted all of the red herrings of why competition wouldn't work in the electric industry. We have proven that retail wheeling works. We have shown that the physics of electricity is not a barrier to markets (em that consumers do care about who provides them electricity.
• We have shown that competition can be introduced while still addressing sunk investments and above-market contracts.
• We have shown there is no such thing as stranded benefits. We can have social programs to assist low-income power customers. Funding can continue for public purpose research and development.
• We have proved the untested notion that educated consumers are willing to choose to pay a premium for renewable energy.
• We have proven that power plants need not sell at "fire sale prices."
• We have shown that securitization can work (em that asset-backed securities offer a reasonable way to finance either a government-mandated rate reduction or recovery of uneconomic costs.
• We have created the Independent System Operator and the Power Exchange, proving that dedicated people working on seemingly impossible deadlines can perform miracles.
• We have shown that meters can be installed, maintained, and read by new market participants, with no degradation of worker or consumer safety.
• With the ISO, we have transformed the electric market without risk to reliability. System integrity can and will be maintained, even during record-setting summer temperatures.
• We have introduced new players to the market without sacrificing the protections that California