Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Revisiting California

Market power after two years.
Fortnightly Magazine - April 1 2002

the crisis was like a scene from a frontier bar in an old western. Once the first punch was thrown, every interest group leaped into the fray with its own two-fisted agenda. Generators launched preemptive attacks on air pollution agencies, the California governor accused marketers and generators of price fixing, Secretary Richardson moved to seize scarce Pacific Northwest reservoirs, and municipals like L.A. and federal agencies like the Bonneville Power Administration were accused of profiteering. Within minutes, the bar was a roiling mass of special interest punching, kicking, and screaming. Policy responses were especially hopeless. The ISO spent months tinkering with price controls that always contained fatal loopholes. 5 FERC dithered in appalling indecision for seven months, only to gun down one of the victims of the crisis-the California Power Exchange (PX)-on Dec. 15. Governor Davis's contribution was to negotiate deals with the marketers and generators that effectively fixed the unfair prices for years to come, while simultaneously assailing them for price fixing. Only after the composition of FERC was changed, were substantive steps taken-the adoption of a must-offer rule and WSCC-wide price caps.

Had the West Coast Run Out of Electric Capacity?

While pundits from San Diego to Maine opined daily on this issue during the crisis, the truth is that under the California ISO's rules, no one was certain exactly where the region stood. The WSCC had published, as they had done for the preceding 33 years, a summer load/resource appreciation indicating that while California supplies for the summer might be tight, that there was no immediate cause for alarm if 1,642 megawatts were available for import during June 6 In May, for example, they projected a reserve margin of 29.2 percent for California.

When the California ISO announced its first emergency on May 22, 2000, the industry was completely taken off guard. I can remember the exact moment of the first emergency. I was at a conference in Quebec when calls began arriving from utility and industrial clients as well as other industry experts. Every call started with the same question: "How can we be having an emergency in May, when loads are low and resources are high?" 7

Under the complex structure of the California system, an emergency did not require a true shortage. The definition of an emergency is when the capacity offered the previous day in the computerized markets of the Power Exchange and ISO was less than 107 percent of forecasted demand. At the time, the ISO had no mechanism in place to determine if it was actually facing an emergency, or if the phone had just stopped ringing. 8, 9

McCullough Research's response to the crisis was typical of the electric industry. We asked a group of our clients-industries and utilities-to fund an investigation of the problem. Our initial estimate of the completion of the study was July 1. Little did we know that the task of accumulating data would require the intervention of every state regulatory body in the WSCC and would take months to complete.

To this day, it is unclear to