Calif. lays out an industry learning curve

Kathleen Davis, Associate Editor

Last year everyone believed that California’s energy problems would fade with the cooling temperatures. In industry minds, the crisis was a fleeting summer romance that would prove stale at the cusp of fall.

That was then; this is now. And California’s energy crisis is still going strong-from rolling blackouts to political debates, the Golden State remains fresh on the industry’s lips. With major electricity shortfalls once again predicted for this summer, industry insiders and politicians alike are taking the state’s lessons in deregulation to heart, from sea to shining sea.

“We know that electricity is indispensable, and anyone who doubts that should move to California for the summer,” stated John Rowe, outgoing chairman of the Edison Electric Institute (EEI) at their annual convention in New Orleans in early June.

Pointing out that the Golden State’s energy problems have “provided a forum that is long overdue,” Wayne Brunetti, president and CEO of Xcel Energy, laid out a few harsh truths gleaned from the last year:

  • that a “piecemeal approach” is not effective;
  • that political and regulatory gridlock helped create the crisis;
  • that FERC authority should be expanded (perhaps to even include eminent domain in the siting for transmission lines);
  • that the repeal of the Public Utilities Holding Company Act (PUHCA) should be examined;
  • and that the industry needs to “proceed with some sense of urgency.”

William Orr, CEO, Northeast Region of Mirant Americas, expanded on Brunetti’s comments at an early morning EEI conference session entitled “Beyond California: Impacts on the Supply Business.” Orr commented that the industry really needed to “get back to basics.” Stating that one of the overlooked facts of the California crisis is that the state is not fully deregulated-hence creating the ensuing problems-Orr urged the audience not to lose that deregulation focus.

“The [deregulation] vision is still real, can still happen,” he said. “We haven’t even gotten started yet.”

Stressing a plan of education and balance, Orr pushed for the edification of politicians and consumers about deregulation, markets and pricing, as well as conservation and emissions issues. Orr also requested an energy policy and an environmental policy that worked together, projecting that previously the environmental policy has moved ahead of energy.

“This is perhaps because we didn’t have an energy policy for the last eight years,” he commented.

Supporting Brunetti’s appeal for new markets, Orr added that true competition should be allowed to work itself out-to the logical end of whatever situation might occur for either consumer or energy company.

“If I made bad investments and bad decisions, let me go out of business,” Orr stated. “This is what capitalism is about.”

Lynn Lednicky, senior vice president for Dynegy, tied in both Brunetti’s and Orr’s sentiments when laying out what he saw as the three major challenges at work because of the ongoing crisis in the Golden State.

Building on Orr’s statements, Lednicky first covered what he labeled the “California effect.” He pointed out that deregulation was not the problem in California; the problem truly rested in the fact that California was stuck in the transition process.

“California was not a failure of deregulation,” he said. “It was a failure to deregulate.”

Lednicky brought in Brunetti’s statements with his second challenge, that of having a transmission system in transition as well. Lednicky emphasized that the supply side of the industry should be keenly focused on the fact that “the demands of the 21st century creates strain on a 20th century infrastructure.”

Finally, Lednicky prodded the logic behind having a national energy policy as a political topic, and he questioned whether the added political pressure would actually facilitate solutions or simply lead to more gridlock, as it did in California.

Overall, it seems that the Golden State stirred up more questions than answers. As Orr commented, “The rules are changing every day.” However, the current instability may lead to a newer, faster, better deregulation process in the end, according to some energy insiders. If California didn’t prove the solid, shining example of deregulation everyone expected, the state’s woes have at least given the industry plenty chances to open new dialogues.

“California has shown that drinking the rhetoric straight doesn’t do it,” John Rowe added.

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