LCG Publishes 2024 Annual Outlook for Texas Electricity Market (ERCOT)

LCG, October 10, 2023 – LCG Consulting (LCG) has released its annual outlook of the ERCOT wholesale electricity market for 2024, based on the most likely weather, market, transmission, and generator conditions.

Read more

LCG Publishes 2024 Annual Outlook for Texas Electricity Market (ERCOT)

LCG, October 10, 2023 – LCG Consulting (LCG) has released its annual outlook of the ERCOT wholesale electricity market for 2024, based on the most likely weather, market, transmission, and generator conditions.

Read more

Industry News

FERC Action Disappoints California Populists

By Ric Teague

LCG, Dec. 18, 2000--The Federal Energy Regulatory Commission approved on Friday a laundry list of changes to California's restructured electricity market aimed at correcting what inspired FERC chairman James Hoecker to say "This version of competition was a disaster in its application, no question about it."

About the only thing FERC did that met with approval from the state's populist activists was cede to the California Public Utilities Commission control over the remaining generation assets of the state's three investor-owned utilities.

FERC said the utilities still have about 25,000 megawatts of generation that hasn't been sold off, but that figure is much too high. California has about 44,300 megawatts of generation belonging to utilities or power producers. Of that, 4,300 megawatts is nuclear and 13,500 is hydroelectric. The nuclear power is owned by the investor-owned utilities, as is most, but not all, of the hydro.

Let's say that Pacific Gas & Electric Co., Southern California Edison Co. and San Diego Gas & Electric Co. still own 16,000 or 17,000 megawatts of generation. But remember that it's late autumn, and the rivers are little more than a trickle. Current hydroelectric production could be down to 5,000 megawatts.

Nevertheless, consumer advocates liked the idea of putting that generation under the control of the PUC, which could set a "reasonable" price and help drive down wholesale power prices in general. Even Nettie Hoge, executive director of Turn, liked it. "I think this is a good provision," she said. "It could have a beneficial impact." Four years ago, she endorsed the California restructuring legislation that Hoecker has found to be a "disaster."

Everything else that FERC did drew fire from California's populist politicians. FERC commissioners "have acted as pawns of generators and power sellers whose only interest is to plunder our economy," Gov. Gray Davis exploded. "Given this decision, California now must move forward on both legal and legislative fronts to assure stabilization, generation and conservation."

The governor is dreaming if he thinks lawsuits and legislation will produce an abundance of power plants overnight.

One of the things Davis and his Democrat allies have been talking about is re-regulation, and FERC doesn't want to see that happen. "There is a real chance that competition in California can be a story of success and not merely a story of distress," said federal commissioner Linda Breathitt. "My commitment to this path remains."

"All classes of electric consumers, from residential customers and small businesses to large industrial users, are calling for relief and I am afraid they are calling for an end to deregulation," Breathitt said. "We must not allow the circumstances in California to allow us to deviate from our course for fully deregulated and open markets."

Aside from giving the PUC control over the remaining generation of the utilities, FERC instituted a "soft price cap" of $150 per megawatt-hour of wholesale power. That means that power producers can charge what the market will bear, but will have to support their prices under federal review. With the high price for natural gas, the fuel of choice for California power plants, that support will not be difficult.

The need to eventually justify prices may mark the end of the gravy train for independent power producers, though. Those companies, in reporting their third-quarter earnings this year, all showed sharp profit gains, and some admitted it was from selling electricity to California utilities from power plants they had purchased from those same utilities.

That aspect of California's electricity problem has Sen. Dianne Feinstein, a California Democrat, all wrought up. "The transfer of billions of dollars from California to the energy generators, which has been taking place over the last eight months, is unconscionable," she said. "If these prices don't settle down, my strong recommendation to Gov. Davis and the state Legislature is that they begin to re-regulate."

FERC won't let California re-regulate and Feinstein doesn't have the clout to fight FERC.

What seems to be lost on a lot of politicians and bureaucrats is California consumers have yet to pay for this high-priced power, except in the San Diego area, where monthly residential bills soared from around $55 to more than $150 in some cases. PG&E and SoCal Ed have been paying the power producers for the electricity they sell to their residential and small commercial customers at rates that are frozen at 10 percent less than they were before deregulation. The two companies are now more than $8 billion in the hole -- money they have paid for power but haven't collected from customers.

Some consumer advocates rub their hands in glee at the thought of the utilities having to eat that huge sum, but it won't happen. FERC commissioner William Massey noted the companies' plight and said "Some day soon a federal court, when asked, will declare that utilities are entitled to recover these high wholesale costs from their customers."

On Friday, FERC also required companies buying and selling power to do 95 percent of their transactions in the forward market, instead of the last-minute spot market. Part of the blame for high power prices can be laid to using the spot market for scheduled power instead of 11th-hour adjustments, and the California Independent System Operator has been one of the worst offenders, as it scrambles to find enough power to ensure system reliability.

FERC also sacked the Cal-ISO governing board, and told the agency to get a board of governors on which no one sits who has any connection whatsoever with the electric power industry.

Nothing FERC did -- or could do -- addressed the one problem that is causing California electrical distress. The state, which if it were a separate nation would have the fifth largest economy in the world, has a chronic power shortage, of the sort that troubles countries like Turkey and Nigeria.

Unlike developing countries, California doesn't lack the money to build power plants -- just the will.

Copyright © 2023 LCG Consulting. All rights reserved. Terms and Copyright
The Locational Marginal Price Model (LMP) Network Power Model
Day Ahead and Real Time Market Simulation
The Gas Procurement and Competitive Analysis System
Database of Plants, Loads, Assets, Transmission...
CAISO CRR Auctions
Monthly Price and Congestion Forecasting Service