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News Analysis

Industry experts debate whether so-called "price mitigation measures" miraculously solved the California crisis.
Fortnightly Magazine - January 15 2002

are a serious interference with the market. . . . [you] can't fix gaming by the permanent disequilibrium created by caps," he says.

Indeed, generators have repeatedly-and heatedly-disputed assertions that they deliberately withheld power from the California market. In a press release last May, Mirant challenged the CPUC and the CAISO to cough up data to back such charges. "It's time to put the political rhetoric aside and speak the facts," Mirant's CEO of western operations, Randy Harrison, stated. "State officials have been to our facilities 65 times since January [2001] and have found in every instance that Mirant is in full compliance." Harrison termed the gaming claims "ridiculous," and also said that the only reason Mirant had taken a unit off line was to address a safety or environmental concern.

"The hypothesis that generators scaled back production in order for their competitors to make money is height of idiocy," Ackerman declares. He says that the precipitous drop in megawatts offline reflects nothing more than generators bringing units back online for summer duty, after routine maintenance. Most of maintenance, he says, was supposed to occur in the fall-but because of CAISO's deep concerns about overall supply, most scheduled maintenance was deferred, and deferred, and deferred, for two quarters. When the generators were finally taken down, he says, "[t]hey were tired dogs that needed a lot of maintenance." Many of the units taken down were old thermal generating plants, previously owned by the utilities, that he says had never been run as hard as they were in 2000. Prior to deregulation, according to Ackerman, those units were running perhaps 15 percent to 20 percent of the hours possible, but in 2000 were pushed to 55 percent to 60 percent of the hours. "That takes a toll, especially when the plants are 30 to 35 years old," he says.

Gazing Into the Crystal Ball

Beyond wholesale prices and outages, another pressing question about the caps is their effect on investment in new generation capacity. Since the beginning of 2001, a total of 2,000 megawatts have come online, according to Moore. He says that beyond stabilizing the market, the FERC caps have shaken out the weaker players, and given pause to the stronger market players, causing them to build generation projects in a more thoughtful, sustained way.

As Mullen points out, California still imports close to 25 percent of its electricity. "We need to see the market actually fixed so it operates as a competitive market, so that we don't need price caps. We need stability in regulations in the state to drive new investment." He adds, "[t]he most important thing is getting the market in balance. Caps can inhibit investment generation. . . . the projects funded are far, far less than before the caps."

At least one company has backed out of building new generation in California as a direct consequence of the price caps. Reliant currently is not building new generation in California, according to John Stout, senior vice-president, asset commercialization at Reliant. What new generation Reliant is building is in Arizona