In thinking about transmission pricing for a competitive electric industry, we should remember that the fundamental objective of competition is to increase economic efficiency. Improved economic...
at 6.5 cents per kilowatt-hour ($65/MWh) for residential and small business customers, under a recently enacted state law that otherwise would give discretion to the PUC to adjust the 6.5-cent ceiling. But even that modest proposal could lead to trouble. In mid-November, California PUC commissioner Carl Wood suggested in a draft decision that the statutory 6.5-cent plan could make San Diego Gas & Electric Co. even worse off, if significant numbers of large-volume industrial, commercial, and agricultural customers take advantage of the 6.5-cent plan, and if purchased power costs continue to rise. The PUC was expected to review Wood's proposed decision on Dec. 7. .
Retroactive Refunds? At a public hearing before Chairman James J. Hoecker and Commissioner William Massey of the FERC, held in San Diego Nov. 14, California Gov. Gray Davis had again called on the FERC to require retroactive rate refunds for San Diego consumers.
"Your plan will make things worse next summer," Davis said, referring to the proposed order.
The governor's words echoed the comments of California state Sen. Steve Peace, who had testified a week earlier at the FERC in Washington, D.C. on Nov. 9, calling for retroactive refunds. Peace had questioned why the FERC should apply the filed rate doctrine (barring retroactive refunds) when rates are based not on cost of service, but on competitive forces.
"There's no filed rate," argued Peace, "because there is no cost of service."
In fact, just a few days earlier, Congressman Bob Filner (D-Calif.) had introduced new federal legislation (H.R. 5626) to amend the Federal Power Act to allow the FERC to order refunds of rates to the extent they exceed the just and reasonable level, with interest accrued "from the date on which the rate or charge was paid," in the special case where the FERC has prescribed market-based rates for the transmission or sale of electricity.
Refunds could prove problematic, however. Chairman Hoecker pointed out the problem in a statement he released on Nov. 17, asking for guidance.
"If the commission were to order refund of excessive rates," asked Hoecker, "how would we determine the excess in a market-based rate environment? What would be the just and reasonable rate? Who would be responsible for refunding the overcharge?"
Market Power or Broken Markets? Testifying before the FERC on Nov. 9, Diane Jacob, chairwoman of the San Diego County Board of Supervisors, had laid it all on the table.
"I liken what is happening in San Diego to white collar crime and no less," she said.
Others blame the market structure. In comments filed Nov. 21 on behalf of ELCON, the Electricity Consumers Resource Council, and various industrial customer groups, attorney Sara Schotland reminded the FERC that her clients had been warning of structural flaws in the California market for years, especially the idea of dividing the power exchange from the independent system operator, and thus forcing the ISO to work through third-party scheduling coordinators to balance the grid in real time.
"As far back as July 25, 1994," said Schotland, "we warned that the U.K. model is better left