On Thursday, Dec. 8, as natural gas hit $40 at the citygate for Southern California (prices hit $60 that Friday), I found myself in Colonial Williamsburg, a guest of Michigan State University's...
Why power prices may have hit a new plateau, and what it all means.
The gloves didn't really come off until just after lunch , when Chairman James Hoecker returned at about 1:30 p.m. to take his center seat on the bench at the Federal Energy Regulatory Commission, to open the afternoon session at the FERC's umpteenth (and not last) hearing on last summer's troubles in California's electricity markets.
First Hoecker asked for quiet. The lunch break had been way too short, leaving the audience edgy. Hoecker had let the morning session drag on nearly a full hour past its schedule, as he often does.
Then the chairman fired up those newfangled and enormously expensive full-color flat-screen monitors placed strategically on either side of the hearing room, that give the FERC's hearing room a certain high-tech feel. Time to hear from California Gov. Gray Davis, who had chosen to mail in his testimony by videotape, rather than fly to Washington and explain in person why the feds owe it to his state to fix those skyrocketing prices.
"You are asking us to knuckle under for the next 10 years or so," Davis warned, in a calm but convincing baritone. "You agree that the market is dysfunctional.
You agree that prices are not just and reasonable. But you refuse to do anything about it. Apart from that, you are a fine group of people."
At that point the entire room let loose with a laugh. All, that is, save onethat being the commissioner most likely to take over as FERC chairman under a new administration led by Texas Gov. Bush. I thought it odd. But California state Sen. Steve Peace, next up on the witness stand, had seen it too.
"I note that [Commissioner Curt] Hébert didn't laugh at the governor's joke," said Peace as he opened up.
"But that's OK," he continued, "because he [Gov. Gray] didn't mean to include the commissioner in his comment."
And with that, Sen. Peace (a prime architect of California's power industry redesign) had opened the flood gates to a full afternoon of confrontation from state politicians, utilities, and especially the new independent power plant owners. This fight has caught Hoecker and his FERC entirely off guard. It promises to spiral way out of control.
"ARE WE IN A DIFFERENT PRICE PLATEAU TODAY THAN WHERE WE WERE A YEAR OF TWO AGO?" In asking that question, California Power Exchange CEO George Sladoje suggests that "something happened in May 2000," and that prices "haven't been the same since."
From Southern California Edison, senior vice president John Fielder (regulatory policy and affairs) questioned why wholesale power prices should remain so high as they have on into autumn, especially during off-peak periods.
"There was no reason why the price yesterday (Nov. 8) at 8 p.m. was $147/MWh [14.7 cents per kWh]. That is just unconscionable."
Nevertheless, Dynegy believes that the industry must learn to accept prices like that as normal.
"Short-run marginal costs in California often exceed $100/MWh. With delivered gas costs running at approximately $7/MMBtu