Switch a Success, Firm Says of Electricity Deregulation
The lights stayed on for the most part during California’s first year of electricity deregulation, despite record summer usage and a few wild price spikes.
That was the assessment Wednesday by officials of the California Independent System Operator, the nonprofit corporation that is now the state’s top electric traffic cop, as they issued a report on the electric system’s reliability that dubbed the first year of the restructured electricity market a success. But challenges remain as the state heads into air-conditioner season, they said.
Year 1 was a year of “struggles and successes,” said Terry Winter, chief executive and president of Cal-ISO, which assumed the big investor-owned utilities’ job of transmitting the state’s electricity long distances on March 31, 1998, under California’s landmark electricity restructuring law.
Before deregulation, the state’s power plants and transmission grid were primarily controlled by the three large investor-owned utilities: Southern California Edison, a division of Edison International; PG&E; Corp.’s Pacific Gas & Electric; and San Diego Gas & Electric, now a unit of Sempra Energy.
The 1996 restructuring legislation, which also opened the utilities’ territories to other retail electricity marketers, required the utilities to divest power plants and turn over their long-distance transmission wires to Cal-ISO, which is based in Folsom. A separate nonprofit corporation, the Alhambra-based California Power Exchange, operates the market in which electricity is bought and sold.
Local electricity distribution lines are still owned and operated by the utilities.
(Last December’s massive power outage in San Francisco, as well as isolated weather-related power losses in the last year, fell under the responsibility of the investor-owned utilities, not Cal-ISO. For example, the Bay Area blackout was determined to have been caused by worker error, and Cal-ISO fined PG&E; $440,000, the maximum allowed.)
Although they have no quarrel with the reliability of the system so far under restructuring, consumer activists at TURN, the Utility Reform Network, continue to question the premise of electricity deregulation.
“We’re still asking where are the benefits for consumers that seem to be always farther down the road, farther down the road,” said Mindy Spatt, spokeswoman for the San Francisco-based group.
Among the major challenges of the last year identified by Cal-ISO were several Stage 1 and 2 power emergencies caused by record summer electricity loads, which allowed utilities to interrupt the power supply to commercial and industrial customers that had selected that option in exchange for lower rates.
A related problem developed in July when high usage allowed generators to bid a whopping $5,000 a megawatt and more for the opportunity to supply power if needed during demand surges. That price was 500 to 1,000 times the usual price for so-called reserve replacement power, in which a supplier is paid to reserve some of its capacity to produce electricity during times of high use.
Such ancillary services, whose market is controlled by Cal-ISO rather than the California Power Exchange, are now temporarily capped at $250 a megawatt. Market redesign is helping to mitigate these problems, Cal-ISO said.
Future challenges include implementing and enhancing ways of bidding to supply backup power and other ancillary services, improving electricity grid planning and increasing out-of-state imports for backup and reserve power to improve system reliability, Cal-ISO said.
Winter said the agency is better prepared for this summer because “the market is beginning to mature, and the generators are more in a position to meet those demands and expect to see them.”
