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Dire deregulation warnings

It now appears that much of California's deregulation will occur on the rescheduled start date, March 31 -- but only because aspects of the process are being delayed by an extra two to ten months. This is not good news for those selling electricity. These delays, say officials, will mainly impact power sellers. Most significant of the postponements will be the crucial ability of the Power Exchange to make hourly adjustments to the price of electricity.

An early casualty of the delay in deregulating California's electricity market has been identified by the Wall Street Journal as a wind and solar electric service supplier -- Clean Power Works of Santa Cruz. Although it had signed up several thousand customers, its operations have been put on indefinite hold. John Schaefer, the engineering consultant who runs the company, had initially thought that $5 million would be enough to cover his start-up costs as a competitive supplier of green power. He now believes the computer and software needed to do the job properly would cost far more.

"It's been a learning experience," says Schaefer, with a laugh. He confirms that Clean Power Works signed up fewer than a quarter of the number of customers it had expected. The set-up of the new electric system made some aspects of doing business complex and costly: once a new customer signed up, the amount of data transfer needed -- because the old utilities still did the residential metering -- was prohibitive. Schaefer has been connected with the wind industry for years and used to work for the Electric Power Research Institute.

To make life even more difficult, the utilities only established how to transfer customer data at the last minute, meaning an enormous amount of work for any independent power supplier. Then there was the delayed start of deregulation, meaning that small companies such as Clean Power were hard hit as they were without expected income.

It now appears that much of California's deregulation will occur on the rescheduled start date, March 31 -- but only because aspects of the process are being delayed by an extra two to ten months. This is not good news for those selling electricity. These delays, say officials, will mainly impact power sellers. Most significant of the postponements will be the crucial ability of the Power Exchange to make hourly adjustments to the price of electricity.

A three year transition towards complete deregulation of the $20 billion-a-year market was to start on January 1. But computer glitches announced in late December had already delayed the launch to March 31. Now it appears the Power Exchange will be able to set prices only one day in advance. An hourly market will be created later, possibly by June.

Other indications that deregulation may not be as open as has been predicted by its backers were highlighted in The Wall Street Journal on February 17. It reported that there is a consensus that the competition will sink most of the 250 would-be competitors in this latest California gold rush. One consultant, from E Source Inc in Boulder, Colorado, is quoted as estimating that just 20 to 40 of the suppliers will survive the competition.

Nor have many customers yet made a decision to change their electricity supplier. The Journal reported that, as of mid February, the state's existing utilities had only received 24,000 requests to switch providers -- out of a total of 9.9 million.

Following a court case brought against a power marketer for allegedly operating a "pyramid scheme" offering electric rates at one-fifth below average market rates, although there was nothing customers could ultimately buy, state regulators have been lambasted for not properly vetting new power companies. It is the job of the Public Utilities Commission (PUC) to investigate electric service providers. It was also the PUC which moved forward the start date for deregulation, despite warnings that such a complex system could not be established so rapidly.

"The PUC missed the boat. The PUC broke the law," said one frustrated state politician, Steve Peace, on February 20. He was referring to a requirement for the PUC to make a finding of physical capacity and technical ability before certifying a power provider. Peace is chairman of the state senate's energy, utilities and communications committee.

Renewables funding

Meanwhile, the California Energy Commission (CEC) has announced final funding guidelines for the $540 million it has set aside to help renewables during the transition to deregulation. On January 21, the CEC declined to change its ruling that a $0.015 credit for sales of renewables was not available if the power was generated outside California. Green Mountain Energy, which is bringing in wind power from Wyoming, and Edison Enterprises had tried to get the credit extended beyond state borders.

The second major issue debated at the hearing was the CEC's suggested $1 million limit per project for funding for "emerging renewables." Energy Research Corp, a maker of large fuel cells, argued that it should be lifted. The American Wind Energy Association (AWEA) also took a stand by supporting the cap, although it was not expected to affect the main issue for wind -- what qualifies as an emerging technology. Small wind systems of 10 kW capacity or less were to be included regardless of the outcome of the dispute over the $1 million cap. The CEC postponed its adoption of the emerging renewables programme for a fortnight, until February 18, along with the final determination of what is an emerging technology. At that meeting the $1 million limit was retained, says AWEA's Nancy Rader.

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