The IEP meeting, held in the serene tranquillity of Fallen Leaf Lake in the Sierra Nevada mountains, was dedicated to sorting out the complex details of the new restructuring law now set to govern the California electricity market. While IEP supported the new California law, AB 1890, many, including IEP consultant Chris Ellison, warned that it was still quite possible for utilities and not independents to capture most of the electricity market. She pointed to the example of the United Kingdom, where the wholesale power pool, established when the electricity market was "liberalised," has been dominated by a few large power generating companies. "We have to ensure that the electricity market encourages the type of competition between Pepsi and Coca-Cola, not the Christians and the lions," said Ellison.
Among the many ways that today's electric utility monopolies may continue to exert their market power is to collect forward costs, such as those for operations and maintenance, through mandatory charges on distribution customers, and not from the market itself. One startling example of how utilities can hog the market is that "if a power plant is used only for one hour per year to meet reliability needs, utilities claim that plant should be considered a must-run unit and therefore be exempt from competition."
Long-time wind booster Jan Hamrin, the founder of IEP in 1982, urged the renewable energy industry to "take possession of the label "green" in view of the positive experience in direct access marketing of green power in Massachusetts. Enova Energy, an unregulated subsidiary of the company that owns San Diego Gas & Electric, successfully marketed "green" power portfolios to customers there even though its largest power source was nuclear. Another provider, AllEnergy of Waltham, Massachusetts, advertised as "green" a portfolio that included 35% coal, 22% natural gas, 14% nuclear, 10% hydro and only 6% renewable power.
Hamrin also urged the industry to steer away from using funds earmarked in the state legislation to subsidise new development. Instead, she suggested using funds earmarked for new projects -- estimated to run about $30 million annually -- "to provide incentives for customers to buy from renewable energy projects. It's better to identify a couple million customers wanting to buy green power, than use the fund to help finance just one or two projects." A key to making money in the transition to a fully competitive electricity market is the unbundling of ancillary services, Hamrin added. "If companies can include metering and billing services as part of the final product offers, these additional services can generate additional revenue," said Hamrin.
Shopping around
Hap Boyd, director of regulatory affairs for wind company Zond Systems of Tehachapi, agreed with Hamrin's approach and said he is most excited about the provision of the new California law that allows customers to shop around for 50% of their electricity needs through direct access contracts in January 1998.
"Big power marketers really like it, because they get to sell 50% of their product, too," said Boyd. Zond also supported AB 1890. Referring to the American Wind Energy Association's failed attempt at having mandated purchases of renewables power included in the legislation, Boyd said: "California was the wrong place to implement the renewable portfolio standard because there is just too much baggage." Utility resentment over the amount, and prices, of renewable power currently being purchased in the Golden State is known to run high. Nevertheless, Randy Swisher of the American Wind Energy Association says he remains disappointed with the outcome in California. AWEA's new strategy will be to push for the renewable portfolio standard in federal legislation being carried by Republican Dan Schaefer of Colorado.
While many in the wind industry agree that a federal approach is the ideal, Eric Miller, former business development manager for Kenetech, has started a new company, dubbed Foresight Energy Corp of Oakland, California, that is already moving to take advantage of the strategies espoused by Hamrin. "We want to be the retail electricity service provider for small commercial and residential customers," says Miller. He adds that this approach is "what it is going to take to sustain demand for renewable power in the near term. We want to be the environmentally preferred power company." Among the options the new firm is exploring is development of wind projects.
