THERE ARE NO FUNDAMENTAL FLAWS. Our systems are functional."

So said CEO Dennis Loughridge, of the California Power Exchange, in announcing nevertheless on Dec. 22 that the opening of the state's day-ahead electricity market, planned originally for Jan. 1, would be delayed because software and systems testing could not be completed satisfactorily.

"California's electron highway is the fifth largest in the world. We need to take the time to make the transfer¼ seamless," added Gary Heath, executive director for the state's electricity oversight board.

In a news conference held Dec. 29, Loughridge joined Jeffrey Tranen, CEO of the California Independent System Operator, to project a new March 31 startup - a date, said Tranen, "that we reasonably believe we can meet." Nevertheless, that date must remain contingent until the both Tranen and Loughridge, and the CEOs of the three affected utilities (PG&E, Edison, and San Diego Gas & Electric) each certifies to the Federal Energy Regulatory Commission that "all of the necessary features" are in place to ensure "reliable grid operations" at the moment the ISO and PX commence operations.

You're probably thinking: "Does this mean I can bypass the CTC?"

Actually, it looks better than that. The three-month delay may end up going down as the ultimate win-win for consumers.

First, the calculation of the "nonbypassable" competition transition charge depends entirely on the PX price. No PX, no CTC.

Second, however, and even more important, the delay will not postpone the 10-percent rate cut that state lawmakers promised for residential and small business customers in Assembly Bill 1890. In an emergency order issued Dec. 23, Public Utilities Commissioner P. Gregory Conlon made sure to that. He noted that the rate freeze and the 10 percent rate cut would continue "regardless of the status of the ISO and PX." In similar fashion, despite the delay, utilities go ahead and collect "headroom" revenues to offset transition costs.

So the longer the delay, the smaller the CTC.

• • •

Did anybody anticipate that California's market would fail to open on time? Speaking to reporters on Dec. 29, ISO CEO Tranen emphasized that the Jan. 1 startup was a "political end-date." One might argue that it was unrealistic from the get-go. In our last issue, where we polled a number of experts on their impressions of California's direct-access plan, no one mentioned the words "software," or "computer." Perhaps we selected the wrong focus group.

When the news first came out, it brought to mind something I'd read a couple months back. Rummaging through my files, I located a set of comments filed last August California Energy Commission on final reports issued by the direct-access workshops on (1) retail settlement and information flow, and (2) meter and data communications standards. There, buried in the comments on information standards and protocols for electric metering, lies an insight that I believe explains the reasons behind California's software failure and market delay. In short, the CEC saw too much emphasis on the supply side - not enough attention paid to customers and their needs. Here's what the CEC said:

"The MDCS Report has focused on the customer-to-supplier data flow needs. This one-way approach ignores the customers' need to real-time energy pricing information to make real-time energy pricing work¼ This issue was raised at the workshop but is omitted in the report. A real-time energy market depends on real-time pricing."

Granted, the ISO and PX were created in part to supply real-time pricing. But at some point, the focus seemed to shift to cost recovery. You can bet that the software now being tested by the PX and ISO relates to how utilities and suppliers will be compensated for one cost or another. And those costs remain directly attributable to the system we've already got - a system built on regulation and founded on bean counting.

Now we propose to introduce competition and look what happens: We delay because we're afraid that the bean counting isn't working just right.

• • •

Note: In my December column, I quoted some of the open discussion from the sixth meeting of the Department of Energy's Task Force on Electric System Reliability, held in Washington, D.C., on Nov. 6. Soon after, I received this response from the chairman of the task force, former congressman Philip R. Sharp.

Bruce Radford's editorial in the December 1997 issue ("Grid & Bare It," p. 4) suggests that the secretary of energy's task force dealing with reliability issues is flawed because it represents such diversity of opinion that no real recommendations can emerge.

First, I believe the secretary was wise in appointing such a diverse group; and second, the task force already has provided the secretary with specific recommendations that I hope will be viewed as valuable.

The diversity, of course, will help to assure policymakers that any recommendations reflect more than just a few interests and, therefore, are less likely to meet with crippling opposition. It certainly would be easier to make policy if you only had to deal with "your own kind" and could exclude from participation divergent opinion. That approach had a certain appeal for the Soviets. It is notoriously ineffective in western democracies.

Mr. Radford failed to mention that the very meeting he attended produced a specific set of recommendations regarding the institutional framework through which reliability standards should be made and implemented in a competitive marketplace. Our goals were to capitalize on private sector expertise, to provide a legal basis for making the rules universally mandatory, to allow for regional diversity in the market and for the evolution of business institutions and practices, and to recognize that the grid operates across national boundaries.

Thus far, the task force's proposed framework has won acceptance in many circles. The task force welcomes the input of knowledgeable people; and we anticipate providing the secretary recommendations on several additional issues.

The Fortnightly may wish to provide its readers with information about these recommendations.

Philip R. Sharp

Chairman

Task Force on Electric System Reliability

Secretary of Energy Advisory Board

(And former chairman, Energy and Power Subcommittee, House Committee on Energy and Commerce, 1981-95.)

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