L.A. vs. The ISO

May 15, 2000

By Bruce Radford

FERC chairman Hoecker wants everyone to join his managed grid. But in California, public power will need some convincing.

First, the news.

On March 23, the St. Petersburg Times had reported that Florida Power had lobbied state legislators "to consider stopping out-of-state energy companies from building new power plants in Florida." Six days later, on March 29, the Palm Beach Post reported that state senator Buddy Dyer had offered an amendment to Florida's pending Senate Bill 2020 seeking to do just that.

But the state couldn't wait for a bill to become law.

On April 20, the Florida Supreme Court took matters into its own hands. In a case that would make a good candidate for a bar exam, the court said that a power producer from out of state can not prove "need" for a new plant in Florida unless that need comes from a regulated Florida utility that has a duty to serve a captive local customer base. (Tampa Elec. Co. v. Garcia, Nos. SC95444 et al.)

Now the talk concerns whether the Florida legislature can come up with an interim "fix" to undo the damage before the session closes at the end of this month.

WHILE FLORIDA BATTLED MERCHANT POWER, LOS ANGELES DUELED ITS OWN DEMON--THE CALIFORNIA ISO. I'm talking about what might be the most significant development so far this year in electric utility regulation--the decision by the California ISO on March 22 to launch a 10-year phase-in plan to replace license-plate pricing with a grid-wide postage-stamp method for the "TAC," or transmission access charge.

Writing on April 21, the Sacramento Municipal Utility District said, "The TAC filing is not a 'run-of-the-mill' amendment to an existing rate schedule. [It] addresses issues that are fundamental the implications cannot be underestimated." (See FERC Docket No. ER00-2019-000.)

On the surface, it's about rate making. But deep down, it's about whether the independent system operators and regional transmission operators in the long run can solve the tough questions that they typically postpone in the early going to put together a coalition so they can claim to be up and running. But here's the rub: In California they're trying to entice public power to join the ISO, but the invitation is having the opposite effect.

As I understand it, when the ISO was first forming in California, everyone agreed that in theory, the most logical way to price transmission access was to divide the grid into two tiers--lower-voltage lines that serve local needs, and higher-voltage lines used for moving power long-distance. Prices for access to the neighborhood grid would reflect the embedded costs of those local assets (license-plate pricing). But for the superhighway, all users would pay the same fee (postage-stamp rate), based on an average of grid-wide costs (sometimes called "HVAC," for high-voltage average cost).

But practice doesn't always follow theory. So as a stopgap measure, to reach a consensus among the investor-owned utilities required to join, the ISO settled on license-plate pricing for the entire grid. Assembly Bill 1890, the California