Regional grid is wrong solution, state officials say

Federal energy move called illegal

By Don Thompson ASSOCIATED PRESS

April 28, 2001

SACRAMENTO -- By pushing California to join other Western states in a regional organization to run the states' power grids, federal energy regulators want something that will neither cut energy costs nor stave off blackouts, Western officials said yesterday.

Besides, officials said, few states want to join a club with California as a member.

California officials said yesterday they will go to court rather than join a regional transmission organization, or RTO, that they say would limit California's ability to control its power grid by giving more authority to the federal government and other Western states.

"We're not going to give up our authority to resolve our problems," said Michael Kahn, board chairman of the California Independent System Operator.

The Federal Energy Regulatory Commission is illegally trying to force California to join an RTO by making that a condition of limited electricity price caps the commission ordered this week, Kahn and California Public Utilities Commissioner Loretta Lynch said.

That won't help in the short run, they said, echoing criticism by Gov. Gray Davis.

Eventually, however, states will move toward RTOs, officials and analysts said.

This week FERC approved RTO West, which would control 90 percent of the lines from the Canadian border to southern Nevada.

RTO West includes Washington, Oregon, Idaho, western Montana, parts of Nevada and Utah, a tiny portion of Northern California and possibly the Canadian provinces of Alberta and British Columbia.

A second RTO known as Desert Star, made up of New Mexico, Arizona, Colorado, eastern Wyoming and the West Texas panhandle, expects to seek FERC approval next month.

California should create its own RTO -- essentially, the current California Independent System Operator -- to work with its neighbors to form the sort of larger, more-efficient energy market that FERC envisions, suggested California and other Western officials.

"As a short-term goal, most people believe there should be three Western RTOs, and as a long-term goal, merge those," said Desert Star project manager Michael Raezer.

Western states are too diverse and have too many operational barriers to merge their grids immediately, officials and analysts said.

In theory, a larger regional market would erase the shortages in supply and competition that have driven up prices and prompted four days of rolling blackouts in California so far this year, said Stanford University economist Frank Wolak.

However, sparsely populated but energy-rich Western states could be overpowered by California and see their relatively cheap energy rates increase in a seamless market, Wolak said.

Nor is it apparent that a single RTO would bring benefits beyond the cooperation that exists between states, said Erik Saltmarsh, chief counsel for the California Electricity Oversight Board.

The minimal cost savings might be offset by the high cost of merging the states' power grids, he said.

But that's isolationist thinking which no longer works, said Stephen Angle, a former FERC attorney whose law firm now represents several power generators.

FERC's concern, Angle said, is that California has tried to go it alone but created problems "for itself that are spilling into other states."

In other developments:

State power buyers have asked for an additional $500 million to buy electricity for the customers of three cash-strapped utilities. That brings the total amount authorized for power purchases to $6.2 billion since mid-January, when the state began purchasing power for Pacific Gas and Electric Co., Southern California Edison and San Diego Gas and Electric.

California PUC attorneys are advising state agencies to avoid submitting monetary claims against Pacific Gas and Electric Co. despite the company's bankruptcy. The PUC is trying to retain its electric rate-setting authority over the utility and says submitting claims could bring the state under the court's jurisdiction as a creditor, which could allow the judge to set electric rates.

http://www.uniontrib.com/news/uniontrib/sat/index.html

-- Martin Thompson (mthom1927@aol.com), April 28, 2001