Unless embraced as an integral part of the business strategy, risk management is nothing more than a bureaucratic exercise that lulls the management and directors into a false sense of security...
Sowing the seeds for California Crisis II?
Experts say that many of the new policies by the PUC and the state legislature seem to be putting the Golden State on track for more blackouts.
Although California's electricity crisis reached its worst point two years ago, utilities, consumers, and other market participants continue to fear a recurrence of the supply shortages and price spikes that added $40 billion to the cost of electricity over a horrific 13-month period.
Despite a host of emergency measures implemented in response to the crisis, no one believes that the underlying problems of energy infrastructure or faulty market designs have been completely corrected. Particularly, many Californians are concerned that regulators:
- Have failed to attract enough generation to meet demand (witness many cancelled merchant projects);
- Have not created conditions conducive for energy efficiency; and
- Have established draconian liability schemes in the procurement process;
For example, regulatory policies about customer choice have largely been punitive since the crisis, with an emphasis on making certain that few customers can escape some liability for the costs of power procurement, says California Manufacturers and Technology Association's (CMTA) Vice President of Government Relations Dorothy Rothrock. Southern California (SoCal) Edison was able to win a 2 cents/kWh "historic procurement charge" (HPC) as part of its financial rescue plan to cover losses from the summer of 2000. Then, in December 2002, the California Public Utilities Commission (CPUC) implemented a statewide "cost-responsibility surcharge" (CRS) of 2.7 cents/kWh to raise about $500 million per year from direct-access customers and pay for the power that state Department of Water Resources purchased. The surcharge is non-bypassable, meaning that customers must pay it no matter where they obtain their energy commodity.
With a new assessment of the costs of paying off the DWR bonds, that CRS figure may rise to as much as 4 cents/kWh this summer, Rothrock said, eroding the cost savings that companies are seeing from market-based power options. She called it a "time-delayed impact" of the power crisis.
How the CPUC deals with such liabilities will provide a signpost for future regulatory directions about the marketplace.
One recent issue on the CPUC's agenda offered an illustration of the various factions at play. There were three alternate versions of a policy for imposing a departing-load charge (a.k.a. exit fee) for customers who install on-site cogeneration equipment. Any existing bypass units as of Jan. 17, 2001, will be exempt from the charge, which has not yet been calculated. That will await a later ruling. What was on the table for consideration were the various components of the prospective fee, particularly the responsibility for covering a portion of the DWR bond charges going forward and Edison's HPC, plus several possible exemptions from the charge.
Under an administrative law judge's draft decision, departing load would have been responsible for both the DWR costs and the HPC, but exemptions were carved out for up to 125 MW of new bypass in PG&E and Edison territories and 34 MW in San Diego Gas & Electric's region.
An alternate decision from former CPUC President Loretta Lynch, with the backing of Commissioner Carl