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Armando Rendón |
June 18, 2001 |
CPUC: 066 | |
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415-703-1366 |
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STATEMENT OF CPUC PRESIDENT LORETTA LYNCH
ON BILATERAL POWER PURCHASE CONTRACTS
Once again, the California Public Utilities Commission (CPUC) and I are being falsely accused of prohibiting utilities from signing long-term forward contracts as a way to reduce California's electricity costs. Once again, we will set the record straight.
Since wholesale electricity prices began skyrocketing in mid-2000, top government decision-makers, industry members and other experts have advocated long-term bilateral contracts as an effective way to reduce costs.
For the past 18 months, since I joined the Commission, the CPUC has pursued a policy of encouragement of utility-signed long-term contracts reversing the policy of previous Commissions who banned utility-signed long- term contracts believing spot market prices would be cheaper.
Since early 2000, all five Commissioners have voted 10 times to approve utility requests for authority to enter into bilateral contracts. In several cases, the Commission granted this authority over the objections of power sellers. In addition, in December 2000, I initiated reconsideration of the Commission's contracting guidelines issued the previous August at the request of Pacific Gas & Electric Company. I subsequently presented a proposed order for the Commission's consideration that would have created clear guidelines for the utilities in their contracting efforts. Those proposed price guidelines became irrelevant on December 8, 2000, when the Federal Energy Regulatory Commission (FERC) removed price caps, immediately causing prices to rise uncontrollably.
All three major utilities in the state took advantage of the authority the CPUC granted to them by entering into Power Exchange (PX) forward contracts and bilateral contracts with private power sellers. It has been said that the utilities did not take full advantage of the authority given them, particularly by the CPUC order of August 3, 2000, but signing long-term contracts requires judgments about the future. While long-term contract prices offered last fall might look inexpensive today, at the time they were much higher than the prices the state's utility customers had ever previously paid for power. The utilities signed contracts - or declined to sign them - using their business judgment.
The state's energy crisis results from the convergence of many complex circumstances. While we would like to find a single, simple solution to these problems, there is none. The CPUC will continue to work hard with the Governor and Legislature, other agencies, the utilities and the citizens of California to find solutions to the current crisis.
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See attachment for timeline of CPUC decisions on long-term contracting.TIMELINE OF CPUC ACTION ON FORWARD AND BILATERAL CONTRACTS
December 1995: The PUC issued a decision requiring utilities to buy and sell through the Power Exchange (PX) rather than through bilateral contracts.
March 23, 1999: The PX, with support from the PUC filed a request with the Federal Energy Regulatory Commission (FERC) for authority to offer block forward products.
May 26, 1999: FERC approved the PX's March 23 request to offer block forward products
July 8, 1999: The PUC approved the SCE and PG&E requests to purchase PX block forward products up to 2,000 MW, about 1/3 of the utilities' minimum load. SCE had initially requested authority for bilateral contracts (contracts made outside the structure of the PX).
January 6, 2000: SCE requested authority to buy new PX products; and to increase volumes to "Net-Short" requirements. (The Net Short is the additional electricity above that the utilities generate or have under contract.)
January 19, 2000: PG&E made the same request SCE had on January 6 to buy new PX products; and to increase volumes to "Net-Short" requirements
March 16, 2000: Commission approved PGE's and SCE's authority as requested on January 6 and January 19.
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March 21, 2000: Edison asked for authority to purchase PX forward ancillary services. Ancillary services provide standby power to balance the electrical grid in case of an outage among the generators providing power.
March 30, 2000: PG&E asked for the same authority Edison had requested on March 21.
May 4, 2000: The PUC approved Edison's March 21 request.
May 17, 2000: SCE requested daily & balance-of-month forwards, and higher trading limits, with per se reasonableness of all new PX products.
May 19, 2000: PG&E requested similar authority to Edison's May 17 filing.
June 8, 2000: Commission approved PG&E's March 30 request.
July 6, 2000: Commission approved Edison and PGE May 17 and May 19 requests but did not permit procurement for speculation, that is, supplies in excess of actual requirements
July 10, 2000: SDG&E sought additional authority to buy PX Block Forward products.
July 21, 2000: PG&E & Edison filed emergency motions seeking authority to buy power outside of PX in bilateral contracts for energy, capacity & ancillary services with the same volume limits as the block forwards.
August 3, 2000: Commission approved SDG&E's July 10 request.
August 3, 2000: Commission approved PG&E and Edison July 21 emergency motions to enter into bilateral contracts for full net short requirements.
August 9, 2000: SDG&E filed an emergency motion for authority to sign bilateral contracts.
August 31, 2000: SDG&E received "trial bids" for bilateral contracts.
September 21, 2000: The PUC approved SDG&E August 9 motion with no provisions for a pre-approval process.
September 22, 2000: Edison presented Commission staff bilateral contract offers seeking pre-approval.
October 3, 2000: PG&E began entering into bilateral and block forward contracts for a significant portion of their Net Short for 2001.
October 16, 2000: PG&E sent a letter to PUC President Loretta Lynch requesting clarification or advice regarding the prudence requirements the PUC had placed on the utilities' bilateral contracting.
October 27, 2000: SDG&E began entering into bilateral and block forward contracts for a significant portion of their Net Short for 2001.
October 31, 2000: Edison sent a letter to Wes Franklin, CPUC, stating its understanding that September 22 contracts were deemed pre-approved by Commission inaction.
November 15, 2000: Edison began entering into bilateral and block forward contracts for a significant portion of its net short requirements for 2001.
November 22, 2000: Edison sought additional authority to enter into bilateral contracts and requested automatic approval of such authority with no additional Commission action. Here, Edison was seeking authority that would have allowed it to enter into the buying and selling of electricity contracts speculatively.
December 29, 2000: Energy Division Director Paul Clanon denied Edison's November 22 request for automatic approval of additional authority and stated Commission must issue an order following a normal review process.
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