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California decideson retail wheeling plan

Issue 2 and Volume 100.

OPINION

California decideson retail wheeling plan

Robert W. Smock

Publisher and Editor

California gave us a Christmas present. OnDec. 20, 1995, the state`s public utility commission announced that it has adopted, tentatively at least, a plan for retail wheeling and utility restructuring after much debate and many missed deadlines. I hope this will start to resolve the confusion and resulting paralysis that hit our industry nearly two years ago when California first proposed open competition at the retail level.

The proposal follows the compromise outlined in this column last November and looks like a reasonable approach. It includes both direct access to alternative power suppliers for customers who choose that route and operation of a wholesale power pool. There will still be electric utilities and there will still be generating plants.

In broad outline, the new proposal looks like this: California`s electric utilities will transfer operational control of their transmission systems to an independent system operator, the ISO. Another key feature is creation of an independent power exchange which will operate as a voluntary wholesale power pool, matching bids to buy submitted by utilities, power marketers, brokers, customer consortiums and others with bids to sell from power suppliers such as utilities and independents.

California utilities would continue to own but not operate their transmission systems. They would continue to own and operate their distribution systems. They will own and operate generation, but the commission said that investor-owned utilities (IOU) will probably be required to divest “a substantial portion of their generating assets.” The commission said it would provide an incentive to encourage voluntary sale of half of IOU-owned fossil-fired generating capacity. The commission promised to provide for cost recovery for regulated utilities that own stranded assets such as non-competitive power plants.

I don`t know if the California proposal will work or not, but it`s not as radical as many feared. It does not destroy the concept of the traditional electric utility, although it does introduce some major changes. The power industry of the future, if that`s what we`re looking at here, is still recognizable.

I hope utility executives in other states will take a close look at this proposal, then get on with the business of managing their assets, including planning new power supply and maintaining existing generating plants. Competition does not eliminate the need for either. It will probably increase the need for both.