[BETA] Fortnightly

Federal and state interests clash as the FERC battles California over the future of the state's power exchange.

The California Power Exchange will not outlive its four-year mandate because it cannot compete with lower-cost exchanges, such as the New York Mercantile Exchange, Automated Power Exchange and low-cost over-the-counter brokers. So says Edward Cazalet, chief executive officer at Automated Power Exchange and chief rival of the CalPX.

Yet price appeared far down the list of items to consider, as the Labor Day weekend wound down and the Federal Energy Regulatory Commission took up arguments bearing on the future of the California Power Exchange.

On the surface, the issue seems simple: Should the FERC grant the application filed by San Diego Gas & Electric Co. for authority to sell wholesale power outside the PX? Yet the case has deeper ramifications.

SDG&E's application, though rightly filed at the FERC as the agency with authority over interstate wholesale power markets, nevertheless puts federal regulators in the difficult position of managing California's retail power market. The CalPX acknowledged the problem in its comments responding to SDG&E's motion:

"San Diego's application to this Commission [the FERC] is appropriate, because [it] has jurisdiction over sales for resale by utilities through the CalPX ¼ . However, SDG&E's application raises broad public interest issues regarding the mechanics of the California restructuring program, the length of the transition period and the efficacy of California's nascent development of an efficient competitive energy marketplace.

"In general, the [FERC] must evaluate SDG&E's proposal in light of the goals of the California restructuring program." (FERC Docket No. ER99-3426-000, comments filed July 29, 1999.)

FERC vs. CPUC: The Federal-State Conflict

Robert Berry, director of legislative affairs at Automated Power Exchange, puts the issue this way: "Suppose there had been several power exchanges operating in California at the time the FERC issued its order mandating that California's investor-owned utilities must buy and sell wholesale power only through the California PX. Would the FERC have had such authority? Could its order have survived on appeal?"

The case raises other questions as well:

* A Minimum Term? Did the California PUC impose a minimum transition period during which utilities must buy and sell through the CalPX?

* A FERC Admission? Did the FERC agree to a minimum term when it acknowledged in 1996 that a five-year term (later cut to four years) was crucial to California restructuring?

* Antitrust Only? Should the FERC conduct an antitrust analysis in reviewing the PX buy-sell requirement, looking only at market power?

* Broader Considerations? Should the buy-sell mandate end with the utility recovery of stranded costs, or does the term "transition" imply a larger goal, forcing the FERC to wait until California achieves true competition?

* A Split Obligation? Can the FERC waive the "sell" obligation even if the "buy" mandate remains in place?

* A NUG Exemption? Since state law exempted nonutility generation, why not accept the SDG&E motion as narrowed to apply only to third-party, non-QF purchased power?

* Market Too Thin? Is California's wholesale market robust enough to support trading