Computer Woes Delay Electricity Deregulation
The long-awaited Jan. 1 inauguration of California’s deregulated power market was put on hold indefinitely Monday night because the computer system responsible for pricing and scheduling electricity deliveries around the state will not be ready.
The eleventh-hour decision came after an all-day meeting of the boards of the California Independent System Operator, the Folsom-based agency charged with operating the state’s power grid, and the California Power Exchange in Alhambra, where electricity will be bought and sold electronically. Both were established by the state’s 1996 electricity deregulation law that opened up California’s energy market to competition.
The news comes as an embarrassment to California, whose groundbreaking effort at energy deregulation is being watched carefully by other states following the same path.
The delay could also frustrate consumers who have been looking forward for a year to choosing their power supplier.
An essential component of the free market signed into law by Gov. Pete Wilson in 1996 is a complex new computer system that acts both as a real-time trading floor for energy buyers and sellers and as traffic coordinator for the $20-billion worth of electricity moving annually over the state’s grid system. Combined, the two systems are taking on a task that the state’s utilities have performed.
Problems in integrating the two agencies’ computer systems had been rumored over the last few weeks. Power Exchange chief executive Dennis Loughridge said Monday that there was no “fundamental flaw . . . but [the system] could not meet the criteria we laid out.”
Loughridge declined to estimate how long the delay will last, saying a restart date would be announced Dec. 29, when the boards of the two bodies reconvene. “My objective is to keep the delay as short as possible,” he said. But sources close to the governing bodies said the delay will probably last one to two months.
“Faced with the choice of being optimistic, starting as soon as possible and have the system lay an egg, as opposed to being conservative and have it run right, they’re going to act conservatively on this,” one well-placed source said. “They’ve been test-driving it for a week, and it just doesn’t work.”
The delay apparently will not affect the 10% rate reduction mandated for customers of Southern California Edison, San Diego Gas & Electric and Pacific Gas and Electric. Representatives for Edison and PG&E; said Monday night that their customers would receive the 10% cuts as scheduled in their January bills. Edison officials were not available for comment late Monday. The 10% rate cut is only for customers of the three investor-owned utilities. Customers of municipal utilities such as the Los Angeles Department of Water and Power are not receiving the rate cut; deregulation is at least two years away for them. But those customers already pay substantially lower rates.
Although some 15 other states are in the process of deregulating their electricity markets, the Jan. 1 start of California’s Power Exchange was to have been the first of its kind in the United States. The Power Exchange will work like a commodities exchange, with buyers and sellers of energy bidding for electricity electronically.
News of the delay caused consternation among power marketers, the vendors of energy who hope to profit by selling energy to California residents and customers dissatisfied with high rates. Those companies, which include nationwide energy giants such as Enron of Houston, Southern Co. of Atlanta, PacifiCorp of Portland, Ore., and others, have spent enormous sums on staff and marketing.
The California Manufacturers Assn., a Sacramento-based trade group representing 1,000 large companies that is also marketing energy in partnership with Montana Power, said the delay will cost them revenues and their customers large savings. Customers such as aerospace giant TRW had already cut deals that were to have saved them thousands of dollars off their Edison bills starting Jan. 1.
“We are extremely disappointed. This is the state that put a space shuttle into space. It should be able to home in on the infrastructure necessary to make deregulation happen on time,” said spokesman Jeff Gorell.
Julie Blunden, a regional manager of San Francisco-based Green Mountain Energy Resources, a marketer of environmentally clean energy, said the delay will cost her company money in added communications with customers to explain the delay. But she said the wait is preferable to having a system come online that doesn’t work.
“We would like to see the market happen as soon as possible, by an aggressive but realistic date,” Blunden said. “We think that the Power Exchange and [Independent System Operator] have the best interests of the market in mind.”
New Energy Ventures, a Los Angeles-based power marketing firm that has signed up department stores and grocery chains, said a delay would mean a period of no revenue, after significant start-up costs, and disappointment among customers.
“We’re sorry about the delay, but it’s a small price to pay for a system that works,” chief executive Michael R. Peevey said.
But Blunden and others said they were concerned that a delay may have a dampening effect on the energy market if the glitch makes potential customers wary about leaving their utilities.
Loughridge described the pace at which the computer system was developed as “frantic” and that after a week of testing, his staff had been unable to “accomplish end-to-end full market simulation.”
