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try to decide on how to disperse the funds. Nonetheless, the dozen or so
exchange staff remain on payroll. After some significant conflicts, due to the
California energy crisis, the Federal Energy Regulatory Commission (FERC)
and the California Independent System Operator are now cooperating.
Although the midterm contracts were negotiated while the state was in its
energy crisis, and by all estimates are overpriced, significant reductions were
later negotiated. In addition, most of the new power plants that are being
proposed or built are seeking and usually obtaining long-term contracts on
more reasonable terms. The large number of fixed contracts has reduced price
competition among electricity generators on the day-ahead and spot markets to
a very small proportion of power that is needed. Looking ahead, the state now
has a modified market structure for buying and selling power, which the FERC
is expected to approve in 2004. That market structure will continue to operate.
As the existing long-term contracts end, this market may become more robust
for supplying the core demand of the utilities. However, given the past
performance of the market mechanisms, there will be a need for alternative
plans.
On the retail side, some limited competition may emerge over the next few
years. Now, the existing utilities serve virtually all customers in their
geographical areas, with the exception of a few large consumers who had
direct access contracts before the energy crisis. However, pressure remains on
the California Public Utility Commission (CPUC) to allow other large users
similar contracts. Modified direct access and limited exit fees have allowed the
continued development for on-site generation especially with new solar/
photovoltaic (PV), microturbine, and fuel cell technologies.
In addition, some interest groups and municipalities are intensely interested
in aggregation of customers to obtain power from their own contracts. The
California Stationary Fuel Cell Collaborative (CSFCC) and the California
Power Authority developed such aggregated master purchase contacts for new
advanced on-site technologies. The premise of the CPUC and most legislators
is that those customers who want to bypass their utilities and the existing
system must continue to pay their share of the energy debt and overpriced
contracts that are a residual of the energy crisis. If these “exit fees” are added,
the advantages of leaving the traditional utility become limited except in some
exceptional cases. So compromises have been worked out to mitigate the
negative impact on business developed for retail customers. A significant side
benefit is the economic development of new technologies and companies
providing the technologies, services, and operations.
The issue, then, is not whether price competition will be eliminated in
Californiadsome competition is here to stay and may beneficially increase.
The issue, instead, is to identify what will replace competition as the orga-
nizing premise for the evolving energy system in California. What should be
the organizing premise for other states and countries looking to restructure
their power system, given the California experiences?