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ISO-Haste Could Lay Waste on Bay Area Consumers

By Bern Beecham, Vice Mayor, City of Palo Alto
And Pat Kolstad, Councilman, City of Santa Clara

With another summer fast approaching, it’s good to see that State and
Federal policymakers are getting serious about fixing California’s badly
broken electricity market.

However, the half-baked plan proposed by the California Independent System
Operator (ISO), a bureaucratic agency seemingly accountable only to itself,
does little but create new and potentially greater risks for California’s
consumers – especially our residential and industrial customers in the Bay
Area.

Their plan, Market Design 2002 (MD02), is the ISO’s new attempt to semi-
deregulate California’s electric market.

Palo Alto and Santa Clara, as well as many of our other Bay Area neighbors,
have been active participants in the MD02 working group process. This
process has been grappling with various reforms and market design issues
for the past year. We are also actively engaged in the state and federal
legislative debate over the future of our “competitive” electricity market. We
would be remiss if we did not raise a red flag on the ISO’s plan.

The timing of this premature plan is simply based on artificial requirements
by yet other bureaucrats – this time in Washington, D.C. These federal
bureaucrats still believe that the free market – an impossibility given the
electricity infrastructure in California and the West – can best provide for our
electricity. These state and federal bureaucrats once again are putting our
residents and businesses at great risk just to satisfy their desire to tinker with
“free markets”.

The ISO’s plan has been accelerated by months, if not years, because of
federal bureaucrats efforts to force the entire country into a “standard free
market”. Congress recently forced the bureaucrats at the Federal Energy
Regulatory Commission (FERC) to slow down and provide us with a “White
Paper” that gives us and others a chance to see more clearly what they intend
to do to our electricity markets. What’s clear is that the West’s electricity
infrastructure is far different from that in Pennsylvania, New Jersey and
Maryland – yet the market in those three states is the basis for the “standard
free market” that FERC wants to force on the rest of the land. [this sentence
doesn’t work well but I’m not sure what to do about it]

Meanwhile, back here in California, where we are still suffering from the $45
billion experiment in free markets, we understand that “free markets” in
electricity don’t deliver on the bureaucrats’ promises. A major bill recently
introduced in Sacramento would significantly roll back the failed free market
experiment.

For many reasons, the ISO should not be allowed to take further risks with
“free market” experimentation. Instead, it’s in California’s best interest for the
ISO to drop their poorly thought-out MD02 plan andget in step with other state
and federal efforts- together toward a common goal — a practical, workable,
reliable and affordable market structure. One that is in the best interest of
consumers.

We simply have too much at stake for the ISO to rush through any plan before
its time.

Bay Area consumers, particularly those on the Peninsula, should be
particularly concerned about the ISO’s out-of-step proposal.

The transmission into the Bay Area is notoriously congested and
overloaded.   The ISO’s plan would simply increase the prices of using our
already congested transmission lines without providing any incentive to fix the
problem.    How’s that for an economic stimulus package for the high-tech
economy.

Traditionally, transmission costs have been spread over the entire
transmission system and billions of dollars of investment and planning have
relied upon that practice. Community-owned utilities like Palo Alto, and Santa
Clara – the entire San Francisco Bay Area for that matter – would be
particularly hard hit. Our investments in generation would be stranded and
electricity prices to Peninsula consumers would go up by tens of millions of
dollars a year. [this paragraph doesn’t clearly describe the problem or how it
affects us. I don’t think the uninformed reader will get anything out of it.]

To date, the ISO has not conducted any meaningful or scientifically sufficient
studies to identify the costs, benefits or risks associated with their plan, and,
more importantly, how it will affect consumers. This apparent blind leap of
faith could take us all over the untested “market” approach cliff, again.

California cannot afford — nor should it allow — the ISO to replace one ill-
conceived market experiment with yet another.

Many of our state and federal lawmakers have recently intervened in this
matter. Our Senators Feinstein and Boxer and our Representatives Eshoo,
Lofgren and Honda have all helped to force the FERC to slow its market
redesign process and to seek their consultation before moving ahead with
any final plan.

In California, state Senator Byron Sher and others have called upon the ISO to
suspend its MD02 proposal until they have conducted adequate consumer
benefit studies and demonstrated such to the Legislature. Additionally,
members of the state Senate and Assembly are proposing to repeal
California’s failed deregulation law.

We encourage Bay Area consumers to support these efforts and keep the
pressure on state and federal lawmakers to keep the ISO in check and
mindful of California’s best interests.

California consumers have already suffered the consequences of being first,
rather than right, in designing a competitive electricity market. A great deal of
work remains to be done to fix the mess left by that experiment. Palo Alto and
Santa Clara are committed to taking the time necessary to get it right for
consumers. We urge the ISO to do the same.