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DEBATE TAKES YET ANOTHER DETOUR

In the ongoing process of reconstructing California's electric utility industry Southern California Edison's (SCE) large industrial electricity consumers and the Independent Energy Producers (IEP) have been urged to develop a consensus proposal on deregulation of the electricity industry. They will address two potential options: a wholesale power pool or direct access bi-lateral contracts.

In another unexpected twist, the debate over restructuring California's electric utility industry has now shifted to examination of a hybrid wholesale pool/direct access system proposal that is the result of intervention by California Governor Pete Wilson. Wilson, a Republican currently campaigning for president of the United States, coaxed Southern California Edison (SCE), large industrial electricity consumers and the Independent Energy Producers (IEP) to develop a consensus electric industry deregulation proposal.

"This is a significant breakthrough providing a balanced approach to utility restructuring which will jump start new markets in California. This is an important step in moving the utility restructuring debate forward in a manner which will lead to more competition and lower rates," says IEP's Jan Smutny-Jones, even though IEP favours outright utility divestiture of power plants as the best option, an approach the consensus views as a last resort.

A Memorandum of Understanding outlining the consensus view was previewed at a hearing in Sacramento on September 13 and received mixed reviews. Speaking for the Center for Energy Efficiency and Renewable Technologies (CEERT), which includes Kenetech and Zond Systems as members, V John White expressed concern about intermittent resources bidding into the pool. "This is a particularly difficult problem for wind developers if they need to place bids a day in advance. Don't shut out these clean resources," he said.

He added that it was unclear what opportunities there would be for residential customers to get together and buy their power as one large utility customer. But, in a reference to green pricing options for "green cities," such as those in the San Francisco Bay, he said pushing such ideas "will drive the market for renewables in the future."

The intervention by Wilson came following criticism of him from conservative groups for his lack of leadership on electricity deregulation. The Coalition for Choice in Electricity, based in Washington DC, had pointed out that he did not object to the apparent rejection of direct access by the California Public Utilities Commission (CPUC) and its endorsement of a mandatory wholesale pool instead. "California was unquestionably the leader in the march toward consumer choice in electricity," but other states have now taken the lead, states the coalition.

It also says that no resolution of the deregulation issue "should be without non-punitive direct consumer access. Any pooling arrangement must be completely voluntary to bring real competition to California's electricity industry. Accepting anything less would be a mistake."

The new hybrid proposal calls for creation of a "Power Exchange," effectively a wholesale pool. Like the CPUC's suggestion for a wholesale "Poolco" proposal, issued in May, an independent power operator would schedule all transactions and offer economic dispatch through a bidding mechanism that would be open on a voluntary basis. Customers would also be free to enter into physical bilateral direct access contracts, exchange spot prices or to continue paying for generation on the same basis as other utility customers. Such direct access opportunities would commence in January 1998 and be phased in over a five year period until all customers -- large and small -- would be able to shop for power.

One of the key issues that the utility-industry consensus tries to address is domination of the deregulated market by utilities, a major concern of the IEP. Both SCE and PG&E currently meet 78% of the demand in their respective markets. SDG&E meets 70% of its demand. "Whether one looks to a wholesale power pool or to direct access bi-lateral contracts, some fundamental market power principles must be addressed before either approach leads to significant cost savings," comments Smutny-Jones.

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