July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Some in California say they will pay double - once to the ISO, then again to the IOU.
What if power prices fall but the savings get eaten up by higher transmission rates? Let's say we unbundle the wires, but end up creating just another layer of costs? We pay the independent system operator (ISO) to run the grid, but the investor-owned utility (IOU) still owns the wires. It has its own costs to recover. So now we pay two bills, right?
The issue is troublesome for California's electric utilities and a quagmire for Pacific Gas & Electric Co. In a new tariff it filed on Nov. 12 with the U.S. Federal Energy Regulatory Commission, PG&E seeks to bill certain wholesale customers to recover costs it now pays to the California ISO. The customers oppose the idea. Some of them signed contracts with the utility years ago for transmission service. Those contracts say nothing about ISO charges. The list includes the city of San Francisco and the Sacramento Municipal Utility District (SMUD), plus newcomers like Dynegy Power Services.
For SMUD, PG&E's move comes too late: "The treatment of existing contracts was a carefully crafted compromise among the ISO participants, and pulling on any of its threads threatens to unravel the entire fabric."
But I wonder if there's even more at stake. Do electric utilities face stranded costs on the transmission side?
I raised that issue with a PG&E executive (see his answer at the end) and some attorneys representing municipal and public power agencies that purchase grid-related services from PG&E. The opposing attorneys preferred to stay off the record. But they volunteered that the PG&E case involves issues that will face every region and utility that restructures its transmission sector:
"In theory," said one attorney, "the total costs ought to drop, because the ISO is doing things that PG&E used to do. But PG&E has yet to face up to that and make the difficult decisions."
"THE MAGNITUDE OF THE DOLLARS INVOLVED, if unrecoverable ¼ would send a chilling message to any utility contemplating joining an RTO [regional transmission organization]." That view comes from PG&E corporate counsel Mark Patrizio, in a brief filed Oct. 1 in FERC Docket No. ER97-2358-002. The issues in that case have been pending for several years. They concern both PG&E's new proposed tariff and the nonrate terms and conditions in wholesale transmission owner (TO) tariffs filed by PG&E, Southern California Edison Co. and San Diego Gas & Electric.
Edison and SDG&E echo PG&E's concern: "If allowed to stand, the initial decision in this proceeding will ¼ send a very clear negative message to the industry concerning RTO membership and the severity of the financial risks to utilities and their shareholders."
The decision in question was issued by FERC administrative law judge Stephen Grossman last September, and was awaiting FERC review at press time. Judge Grossman ruled that when PG&E acts as a scheduling coordinator (SC) for its wholesale customers, and pays a grid management charge to the ISO, it cannot recover that cost in TO tariff. Instead