BILL ANALYSIS
SB 1823
Page A
Date of Hearing: June 17, 2002
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
SB 1823 (Sher) - As Introduced: February 22, 2002
SENATE VOTE : 35-0
SUBJECT : Public utilities: Power Exchange.
SUMMARY : Repeals the statute that creates and defines the
purposes of the Power Exchange (PX).
EXISTING LAW :
1)Requires the PX to "provide an efficient competitive auction,
open on a nondiscriminatory basis to all suppliers, that meets
the loads of all exchange customers at efficient prices."
2)Authorizes the PX governing board to form technical advisory
committees.
FISCAL EFFECT : Unknown.
COMMENTS :
AB 1890 (Brulte), Chapter 854, Statutes of 1996, established the
PX as a separately incorporated public benefit, nonprofit
corporation. The PX was to provide an open, efficient public
auction to meet customers' electricity loads. Pursuant to an
order of the California Public Utilities Commission (PUC), and
subsequent statute, investor-owned utilities (IOUs) were
required to buy and sell their electricity exclusively from the
PX.
The PX commenced operations in March 1998. Initially, it
operated only a single-price auction for day-ahead and day-of
electricity trading. The PX would determine, on an hourly
basis, a single market clearing price which all electricity
suppliers would be paid based on short term demand and supply
bids submitted by PX participants. In the summer of 1999, the
PX opened its PX Trading Services Division to operate a block
forward market by matching supply and demand bids for long term
electricity contracts. The PX is deemed a public utility under
the Federal Power Act, and is subject to the jurisdiction of the
SB 1823
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Federal Energy Regulatory Commission (FERC) and operated
pursuant to a FERC-approved tariff and FERC wholesale rate
schedules.
SB 1890 called for the electricity generation assets of the
three main IOUs<1> to undergo a process of market valuation,
which resulted in IOUs' divestiture of a substantial portion of
their electricity generation facilities. In turn, for a
transition period, IOUs were required to sell all of their
remaining generation capacity into, and to purchase all of their
required electricity supply from, the PX spot markets, and the
purchases were deemed to be "prudent per se" by PUC.
Elimination of the mandatory PX buy-sell requirement
On December 15, 2000, FERC issued a market mitigation order
proposing remedies for the California market. In the December
2000 order, FERC eliminated a PUC requirement that the IOUs in
California sell all of their generation into, and buy all their
generation from, the PX. In so doing, FERC released the
entirety of IOUs' 40,000 MWs of peak load from exposure to the
spot market. This was designed to permit IOUs to move their
purchase power needs to bilateral long-term contracts and adopt
a balanced portfolio of contracts to mitigate cost exposure.
The December 2000 FERC order actually precluded IOUs from
selling all but their surplus generation into the PX (or any
other wholesale) markets. FERC viewed that as critical to
limiting extreme price volatility in the state, but FERC noted
that this could not occur unless PUC removed its requirement
that IOUs buy only through the PX and unless it provides IOUs
with some certainty with respect to contracting.
Because IOUs participate in both the California retail as well
as interstate wholesale markets, they fall within the
jurisdiction of both the PUC and FERC. FERC noted that its
proposal to eliminate the mandatory buy/sell requirement had
received overwhelming support from almost all interested parties
except PUC. In fact, PUC emphasized that its buy requirement
would remain in place until PUC itself removed it.
---------------------------
<1> San Diego Gas & Electric Company, Southern California
Edison, and Pacific Gas & Electric Company.
SB 1823
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Because PUC refused to abandon its reliance on the spot market
-- PUC explicitly declared that it would continue to require
IOUs to continue to procure the bulk of their power needs
through the PX spot markets -- FERC terminated the PX's
wholesale tariff and rate schedules, effective April 30, 2001.
In this way, FERC eliminated the PX's ability to operate as an
exclusive mandatory exchange.
$150 breakpoint and PX bankruptcy
One other prospective structural remedy instituted by FERC in
its December 2000 order was an imposition of a temporary $150
MWh breakpoint in the PX spot markets. The $150 breakpoint was
a limitation on the single price auction format of the PX spot
markets.
Claiming that it could not comply with the $150 MWh breakpoint
or the attendant FERC-imposed reporting and monitoring
requirements in a cost effective manner, the PX suspended
operations in its spot markets at the end of January 2001. In
addition, the PX was apparently unwilling to file new rate
schedules which would allow it to operate a bilateral forwards
market, and the PX saw trading come to a virtual halt. In March
2001 the PX filed for protection under Chapter 11 of the U.S.
Bankruptcy Act.
Although the PX markets are closed, the trades made previously
in the PX markets are not yet fully resolved.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
None on file.
Analysis Prepared by : Paul Donahue / U. & C. / (916) 319-2083