Shock waves are spreading from the impact of a heat wave that saw California’s electricity system reeling.
With record demand, the Californian Independent System Operator (ISO) on the verge of declaring a stage three power alert, where power outages again affect North America’s most populous and wealthy region, repercussions were always to be expected. But, the move to reduce further price caps appears to have cast into doubt the very raison d’être of the competitive market with the announcement the Duke is considering withdrawing investment from the state’s energy system. As one observer suggested, falling reliability, higher prices and a lack of investment demonstrate that the grand deregulation experiment has sunk. In the wake, other states are looking to the western pioneers and questioning its value.
The prolonged heat wave throughout June, July and August even prompted comment from President Bill Clinton, who called upon the authorities to rectify the situation. Unfortunately, the only option open to regulators is a re-regulation of the market place, a disastrous scenario for the free marketers.
The vote to reduce the price cap followed a number of closely fought attempts by the supervisory board of the ISO to instigate such a move, but in the end, reliability won the day. Some players, notably San Diego Gas & Electric Corp, praised the move after its market-led approach saw average domestic bills more than quadruple between May and August. This occurred since the company completed its deregulation programme and its customers began paying market rates.
However, others suggest that such a limiting cap will see investment fleeing the state power market for more lucrative returns. The warnings that such action could threaten the summer power supply come largely from merchant generators such as Duke, Dynegy and Calpine.
Despite the rhetoric surrounding the relatively short-lived price spikes of the summer and the convulsive response of regulators, some of the more insightful commentators suggest that, given time, the benefits of the competitive, deregulated environment will eventually shine through the current gloom.
To this end FERC has launched a probe to determine if indeed there is competition in the bulk power market and how regulators might solve any potential problems with the market structure. The report is due on 1 November.
