III. Discussion

Since mid-June, we have seen prices in the wholesale electricity market skyrocket to staggering levels as a result of the severe dysfunction of the California wholesale electricity market. As a result, several deleterious consequences have occurred. Ratepayers in San Diego Gas & Electric Company's (SDG&E) service territory saw their electric bills double and triple over the summer. PG&E and Edison have defaulted on payments. Stage 1, 2, and 3 emergencies have occurred with alarming regularity, and indeed, rolling blackouts occurred in Northern California on January 17 and 18, 2001. The Governor, Legislature, and this agency are actively seeking solutions to the energy crisis confronting us. The Federal Energy Regulatory Commission (FERC), despite finding that wholesale electric rates are not just and reasonable, chose to lift price caps, and to refrain from devising a remedy under Section 206(a) of the Federal Power Act (16 USC Section 824e(a)),² while making a number of other changes that add to the complexity and uncertainty of the commercial relationships. As we explained in D.01-01-018, these actions have left California's utilities and ratepayers prey to wholesale electricity sellers who immediately quadrupled and quintupled their prices above already unprecedented levels.

In the hearings we held on financial issues in December and early January, a representative of Edison indicated that in the event that Edison could not purchase power in excess of the 7 cents per kilowatt-hour available in retail revenues to pay for power, Edison would request to be relieved of its obligation to serve. (TR: 755)

On January 18, we received a declaration from Gary Heath, Executive Director of the Electricity Oversight Board (EOB) regarding PG&E's assertion to the Deputy Director Raymond Hart of the California Department of Water Resources (CDWR). Mr. Hart informed Mr. Heath that PG&E stated that beginning January 20, 2001, PG&E would schedule only its own generation and would not purchase additional needed generation to serve remaining customer load. Mr. Heath verified this assertion with PG&E Vice President Dan Richard at 2:15 p.m. on January 18. Mr. Richard confirmed that PG&E would only serve its customers through its own generation, and therefore would not schedule the resources secured by the CDWR for PG&E's remaining load. Mr. Heath states that PG&E cannot rely on its own generation to meet its obligations to serve all the customers in its service territory. If PG&E does not obtain additional generation, reliability of service to PG&E customers will be "seriously jeopardized." (Declaration of Gary Heath, Attachment 1.)

Also on January 18, we received affidavits from Terry Winter, the President and Chief Executive of the California Independent System Operator (ISO) and Ziad Alaywan, Managing Director of the ISO. Mr. Winter declares that Harold Ray, a senior vice president of Edison, stated in a 4:15 p.m. telephone call that Edison plans to continue to act a scheduling coordinator for all of Edison's non-direct access customers. Mr. Ray stated that there is not an intent to abandon any of its customers. At 4:20 p.m., Mr. Winter had a telephone conversation with Mr. Richard of PG&E and Bruce Worthington, General Counsel of PG&E. Mr. Richard stated that PG&E would not change its scheduling responsibilities at this time and that there was a misunderstanding of the scheduling coordination responsibilities regarding the CDWR's role as a conduit to serve some of PG&E's customers. Mr. Winter then declares that: "Mr. Richards [sic] advised me that while the company does not intend to change its scheduling coordination role for all its non-direct access customers at this time, the company will continue to review its scheduling coordination responsibilities to its non-direct access customers as the situation unfolds." (Affidavit of Terry Winter, Attachment 2.)

Mr. Alaywan declares that he participated in two conference calls with personnel from PG&E, Edison, and CDWR, which took place at approximately 8:00 a.m. and 2:00 p.m. on January 18, 2001. During the morning call, all participants agreed that PG&E and Edison would continue to act as scheduling coordinators for all their non-direct access customers, even though some customers would be served by generation provided by CDWR. PG&E and Edison agreed to undertake an inter-scheduling coordinator trade with CDWR in accordance with prescribed ISO processes. During the afternoon call, a PG&E director indicated that it no longer wished to act a scheduling coordinator for non-direct access customers served by generation provided by CDWR. The PG&E director stated that "PG&E does not wish to shirk its responsibilities, but stated again that another entity should serve as scheduling coordinator for customers served by CDWR generation." (Affidavit of Ziad Alaywan, Attachment 3.)

We also received a declaration, dated January 18, 2001, from Peter Garris, employed by the CDWR as Chief Water and Power Dispatcher. Mr. Garris confirms the 2:00 p.m. January 18 conference call described by Mr. Alaywan. Mr. Garris specifically states that Claudia Grief, Director of PG&E Scheduling, informed the participants that PG&E would not be the scheduling coordinator for load that could not be served by its own resources. Mr. Garris also participated in a 4:45 p.m. conference call with Ms. Grief, PG&E Vice President Roy Kuga, other CDWR staff, and individuals from the ISO and Power Exchange. Mr. Garris confirms that during this call, Mr. Kuga indicated that PG&E would not take scheduling coordinator trades from CDWR after Saturday, January 20, 2001, for energy acquired by CDWR for PG&E's load that is not served by PG&E's own generation. Mr. Garris states that PG&E lacks sufficient resources to meet its native load without securing energy from other sources; if this is left unresolved, PG&E's customers will experience adverse reliability problems.