Mountainview Case Before FERC

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, Jan. 30, 2004 Share this on FacebookTweet thisEmail this to a friend

When landmark legislation restructuring California’s electricity industry was signed into law in 1996 (Assembly Bill 1890), the conventional wisdom was that a competitive generation market was the wave of the future. Nearly eight years later, competition in the generation of electricity, at least as far as California is concerned, is far from assured.

In December the California Public Utilities Commission (CPUC) approved a power purchase agreement (PPA) between Southern California Edison (SCE) and the Mountainview Power Company that would commit customers of SCE to pay for 1,054 megawatts of capacity for 30 years at rates which supposedly are based on “costs.” (Decision 03-12-059.)

SCE entered into the PPA with Mountainview, a wholly owned affiliate, without seeking competitive alternatives through a "Request for Proposal" process.

Additionally, the PPA would require customers who are ineligible for direct access to pay for any stranded costs associated with the Mountainview project for the first ten years. Thus, current bundled SCE customers that become eligible for direct access (DA) in the future (assuming the Legislature lifts the suspension of DA and establishes a core-noncore market structure, which is likely) will be on the hook for a portion of the “uneconomic” costs of the PPA for up to ten years even though at that point they will be buying power from an alternate, non-utility power supplier.

The matter is now before the Federal Energy Regulatory Commission (FERC), which is required to approve PPA’s between a utility and its subsidiary. On January 9, CMTA made a filing at FERC in support of a protest by the Independent Energy Producers, noting that its members “are interested in seeing that SCE procures the lowest cost and most reliable resources that are available, regardless of the source” and that “the only way that SCE could demonstrate that this standard has been met is through an open and fair competitive bid process.”

The Mountainview case is an important “test case.” At stake is no less than the future of a competitive generation market in California, with all the attendant consequences for California’s ratepayers.

SCE and the state’s two other investor-owned utilities should be required to conduct an open and fair competitive bid solicitation process to meet future needs. It is important that this process be designed and implemented to ensure that a level playing field exists and that utility affiliates do not have a competitive advantage. Utility affiliates should be permitted to participate in the competitive solicitation process only to the extent that they are physically and structurally separated from the utility, do not share employees, and do not receive any information that is not available to other bidders. An independent administrator (selected by the CPUC and paid for through fees recovered from the bidders) should conduct the bid solicitation and evaluate the bids in conjunction with the utility. To the extent the utility seeks to build and own its own generation facilities, it should comply with the existing “public convenience and necessity” requirements and should be required to demonstrate why its “self build” proposal is superior to other alternatives. The utilities should be assured of full cost recovery for all purchase power agreements and facilities approved under the above-described procedures.
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