Frontlines

Fortnightly Magazine - February 1 2000
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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:

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