January 31, 2001
WASHINGTON, Jan. 31, 2001-Southern California Edison (SCE) Chairman, President and CEO Stephen E. Frank today urged immediate action on legislation giving U.S. Secretary of Energy Spencer Abraham authority to temporarily cap wholesale electricity prices in western states.
Testifying before the Senate Energy & Natural Resources Committee today, Frank noted that the wholesale electricity bill for California had nearly quadrupled over the past year, rising from $7.4 billion in 1999 to $28 billion in 2000.
"FERC, which oversees wholesale power markets, found rates in the California market to be unjust and unreasonable on November 1, 2000, and prices have only gone up since then," Frank said.
Prices rose to an average $219.28/MWh in December, up from $28.19/MWh a year earlier. In January, prices are averaging $306.85/MWh, up from $30.25/MWh a year ago.
"Immediate relief is needed," Frank told the committee, noting that only the federal government has authority over wholesale rates. He called S. 26, introduced by Sen. Dianne Feinstein (D-CA) last week, an effective mechanism for dealing with excessive wholesale rates burdening states throughout the West. The bill authorizes the secretary of energy to impose interim cost-of-service-based rates or regional price caps if FERC determines that prices are unjust or unreasonable but fails to act to address the problem. A state could opt-out of the application of the cap or cost-based rates by action of the governor.
"We believe that the imposition of temporary price caps is fair to both consumers and sellers," Frank said. "Those sellers who truly have high costs will be allowed to recover those costs, including a reasonable return on their investment, but only when their high-priced power is needed to keep the lights on."
While urging swift federal action to rein in unjust and unreasonable wholesale prices, Frank acknowledged that there is much that the state of California can and should do. California officials need to raise rates, establish mechanisms to finance both past and future utility undercollections and take other actions needed to reestablish the creditworthiness of California's utilities, according to Frank.
"This is critical, because the reality is that the electric grid requires substantial capital investment for modernization and expansion," he said, noting that increased rates will encourage conservation.
California officials also need to work in cooperation with federal regulators to implement market structure reforms, Frank said. Reliance on the spot market needs to be reduced by encouraging long-term contracts, he said.
New methods of compensating peaking units through bilateral contracts with buyers or the California Independent System Operator, the operator of the state's transmission grid, are needed so these plants can recover their costs without inflating the overall cost of generation.
In addition, Frank said, the state needs to consider ways to streamline the siting of new plants.
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An Edison International company, Southern California Edison is one of the nation's largest electric utilities, serving a population of more than 11 million via 4.3 million customer accounts in a 50,000-square-mile service area within central, coastal and Southern California. For more information on the California electricity crisis, see "sce.com" or "concernedshareholders.org".
