BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ) Order Instituting Rulemaking on the ) Commission's Proposed Policies ) R.94-04-031 Governing Restructuring California's ) Electric Services Industry and ) Reforming Regulation. ) ) ) Order Instituting Investigation on the ) Commission's Proposed Policies ) I.94-04-032 Governing Restructuring California's ) Electric Services Industry and ) Reforming Regulation. ) ) BURBANK, GLENDALE, PASADENA, AND IMPERIAL IRRIGATION DISTRICT ROUND THREE COMMENT Submitted by: Norman A. Pedersen Jones, Day, Reavis & Pogue 555 West Fifth Street Suite 4600 Los Angeles, CA 90013-1025 (213) 243-2810 Attorneys for Burbank, Glendale, Pasadena Dated: July 26, 1994 and Imperial Irrigation District LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ) Order Instituting Rulemaking on the ) Commission's Proposed Policies ) R.94-04-031 Governing Restructuring California's ) Electric Services Industry and ) Reforming Regulation. ) ) ) Order Instituting Investigation on the ) Commission's Proposed Policies ) I.94-04-032 Governing Restructuring California's ) Electric Services Industry and ) Reforming Regulation. ) ) BURBANK, GLENDALE, PASADENA, AND IMPERIAL IRRIGATION DISTRICT ROUND THREE COMMENT In accordance with the July 8, 1994 Assigned Commissioner's Ruling, Burbank, Glendale, Pasadena, and the Imperial Irrigation District (jointly, "BGP/IID") hereby submit their Round Three Comment in the captioned proceedings. BGP/IID applaud the Commission's selection of topics for this third round of comments and hearings in this proceeding. By focusing its inquiry on the role to be played by competitive wholesale electric markets, the Commission is asking exactly the right questions. BGP/IID believe that a fuller and more robust development of the wholesale electric energy market is, at minimum, a necessary precondition for any subsequent move to direct access and, furthermore, may be sufficient to wring out the costs of uneconomic generation investment. LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 In this comment, BGP/IID suggests a simple, yet potentially effective wholesale market reform that could be undertaken promptly on a voluntary basis to enhance the efficiency, transparency, and competitiveness of the wholesale market without the need for the creation of a new power pool or for regulatory action at either the state or federal level. The reform proposed by BGP/IID - - electronic bulletin board ("EBB") posting of short-term energy transactions by all California electric utilities as well as by those who sell into or buy from California -- may, in itself, be sufficient to attain the Commission's objective of using market forces to squeeze above-market generation costs out of rates. At a minimum, it would be a low-cost, low-risk foundational step toward a region-wide short-term energy power pool and, ultimately, open access. I. A SIMPLE, YET EFFECTIVE REFORM: ELECTRONIC BULLETIN BOARD POSTING OF WHOLESALE TRANSACTIONS. Currently, wholesale markets do not operate with full efficiency. If an electric utility dispatcher desires to buy or sell energy on the short-term market, the dispatcher must call his counterparts at utilities that he believes may be ready and able to enter into an arrangement with him. Through mere human oversight, he may miss the optimal deal. Indeed, if he succeeds in making what perfect information would reveal to be the best possible deal, it would be fortuitous. The functioning of the short-term electric energy market would be substantially enhanced if offers to buy, offers to sell, and completed transactions were posted on an EBB so that the information would be readily available all participants in the marketplace on a real time basis. Through LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 - 2 - bilateral contracting between willing buyers and sellers, market clearing prices could then be established and made known to all. Parties engaged in buying and selling may wish to maintain confidentiality. This desire could easily be accommodated. The identity of the parties to a transaction could be kept confidential, with only basic data such as the quantity, the price, and the receipt or delivery point, e.g., "Palo Verde" or "Tesla", being specified. Buy/sell communications could be from EBB mailbox to EBB mailbox. The technology for establishing an interactive EBB network among participants in the wholesale short-term energy market already exists. The Western Systems Power Pool ("WSPP") already has a limited EBB in place and is currently developing an interactive capability. The primary problems with the WSPP EBB are that it is only available to WSPP members, and it is not used or updated with sufficient frequency to elevate it to being an exchange capable of establishing market clearing prices. Thus, BGP/IID propose that, as a simple but highly effective step towards attaining a more efficiently functioning short-term electric market capable of establishing transparent market-clearing prices, all California utilities, together with all utilities in the western region that are desirous of selling into or buying from the California market, participate in an interactive EBB network on a voluntary basis. They would agree to post all short-term offers to buy, all short term offers to sell, and all completed short-term transactions while maintaining their confidentiality by specifying receipt or delivery points rather than identity. BGP/IID believe that the functioning of the energy market would be further enhanced if completed long- term transactions were posted as well. LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 - 3 - Both Southern California Edison Company ("Edison") and San Diego Gas and Electric Company ("SDG&E") have proposed the establishment of a power pool that would have a rough similarity to the pool that has been established in the United Kingdom ("U.K."). The common feature of the Edison and SDG&E proposals is that energy generators would sell their energy into the pool while energy distributors would buy from the pool at a single pool-established price. Moving directly to the creation of a wholesale short-term energy pool as proposed by Edison or SDG&E could be a costly experiment. Furthermore, if all energy generators sell their energy into the pool with all energy distributors buying from the pool at a single price, the essential dynamic of a freely functioning marketplace -- a willing buyer and a willing seller negotiating a bilateral deal on their own terms -- will be lost. Moving to an EBB marketplace as proposed by BGP/IID would retain the benefits of the bilateral contracting market model while avoiding the potential pitfalls and costs of moving directly to the establishment of the type of industry-wide power pool proposed by Edison and SDG&E. It would be less costly, less risky, yet perhaps more effective than moving directly to a command and control type of power pool in which a single price is set for short term energy. However, it would not preclude a subsequent move to a power pool or even to direct access, if such additional steps ultimately proved to be desirable. Indeed, establishment of an interactive EBB marketplace would facilitate rather that obviate taking those subsequent steps. Accordingly, BGP/IID propose that the Commission convene a workshop to gather together all California electric utilities and all western region utilities that desire to buy from or sell into the California market for the purpose of discussing the use of interactive EBB technology to facilitate LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 - 4 - substantially all short-term energy transactions involving California. The EBB should go into operation when a minimum threshold of utilities agree to utilize the EBB process. In order to encourage participation, BGP/IID propose that EBB information be closed to those parties who, in spite of the commitment to maintain confidentiality and similar safeguards, remain unwilling to post their own short-term energy transactions. Concomitantly, BGP/IID recommend that proposals for creating a U.K.- style power pool as well as proposals for moving immediately to direct access be tabled for now, with primary attention being given to establishment of an interactive EBB marketplace as well as to the establishment of performance- based rate making for California utilities. II. ANY POWER POOL SHOULD BE VOLUNTARY. As noted above, BGP/IID believe that establishment of an EBB marketplace may obviate the need for moving to a U.K.-style power pool while retaining the benefits of bilateral contracting that may be lost if there were a power pool. In any event, however, if the Commission decides to promote the establishment of a power pool, BGP/IID believe that a fundamental precept underlying the pool be that membership should be voluntary. BGP/IID believe this only comports with reality: neither this Commission nor the Federal Energy Regulatory Commission ("FERC") has jurisdiction over all potential energy buyers and sellers. LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 - 5 - III. THE COMMISSION SHOULD CONSIDER THE INTERACTION BETWEEN GAS POLICIES AND ELECTRIC POLICIES. It appears to BGP/IID that there is an emerging disconnect between the emerging Commission policies regarding electricity and Commission policies regarding gas. Gas policy and electric policy should be coordinated. A. Information About Contractual Arrangements Should Be Publicly Available. On the gas side, the Commission has permitted utilities such as Pacific Gas & Electric ("PG&E") and Southern California Gas Company ("SoCalGas") to keep secret their "Expedited Application Docket" ("EAD") contracts with customers who are seen as being potential bypassers. Yet, on the electric side, the Commission seems to be favoring the establishment of open, publicly available, and transparent energy prices. BGP/IID believe that the Commission's approach on the electric side is correct and that the policies established on the gas side inhibit rather than promote competition. For a functioning market to be established for any commodity, whether it be short-term energy or gas transmission service, players in the marketplace need to have information about offers to buy and offers to sell as well as about completed transactions in order for the market to become efficient. It is axiomatic that constriction of information inhibits marketplace efficiency while the open availability of information about transactions enhances efficiency. Accordingly, BGP/IID urge the Commission to adopt a general policy that offers to buy and to sell as well as information about completed transactions should be open and publicly available rather than kept confidential as "trade secrets". To this end, BGP/IID believe that the Commission should grant the Public Records Act appeal submitted by the Southern California Utility Power LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 - 6 - Pool ("SCUPP") and IID to the Commission's Executive Director on June 28, 1994, regarding the public availability of SoCalGas EAD contracts. B. The Commission Should Reject Proposals for Anti-competitive Rates. The Commission will shortly have before it a proposal by SoCalGas to establish what it calls "peaking service rates". See SoCalGas Application No. 93-12-017. The express purpose of this rate is to make it costly for customers to take gas transmission service from a "bypass" pipeline while continuing to take standby or peaking service from SoCalGas. This will force customers to make "all or nothing" decisions about bypass, and it will effectively preclude partial bypass for customers who require an interconnection with SoCalGas for reliability purposes. If, consistent with its efforts on the electric side, the Commission is to promote transmission- on-transmission competition, it should not permit the tying of one service, for example, standby or peaking service, to another service such as basic transmission service so as to effectively prevent competition for the provision of the basic service. C. Short-term Electric Generation Competition Requires that California Electric Utilities Not Be Put at a Fuel Cost Disadvantage. The movement toward a more competitive electric generation marketplace will result in California utilities being at a disadvantage to the extent to which they incur fuel costs that are greater than the fuel costs incurred by out-of-state generating utilities with which they are in competition. Yet, the Commission has pursued policies which will place California utilities at such a disadvantage. As a prime example, the Commission has advocated incremental rates for the Pacific Gas Transmission Company ("PGT") Expansion Project and has mandated incremental rates for the PG&E Expansion Project. Furthermore, the Commission has adopted a "crossover ban" which prevents LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 - 7 - shippers on the PGT Expansion Project from transporting gas on the pre- expansion PG&E system. The consequence of the Commission's policies in favor of incremental rather than rolled-in rates for the PGT/PG&E Expansion Project is that electric utility generators in the Pacific Northwest such as Sierra Pacific or PacifiCorp are able to acquire brokered PGT pre-expansion capacity while Edison, SDG&E, and BGP purchase incrementally priced PGT/PG&E expansion capacity. This results in higher fuels-related costs for Edison, SDG&E, and BGP in comparison to utilities such as Sierra Pacific and PacifiCorp. BGP/IID believe that the Commission should consider gas policy decisions in the light of electric policy decisions and, as a result, shift from advocating incremental rates for the PGT/PG&E Expansion Project to advocating rolled-in rates. IV. CONCLUSION. Wherefore, the reasons set forth above, BGP/IID urge the Commission to do the following:  Establish a workshop aimed at implementing an interactive EBB marketplace that would permit the open posting of all short-term offers to buy and to sell and all consummated transactions.  If the Commission decides to adopt a power pool concept, provide that power pool participation shall be voluntary. LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 - 8 -  Adopt policies on the gas side that are consistent with the policies adopted on the electric side. Respectfully, ___________________________ Norman A. Pedersen Jones, Day, Reavis & Pogue 555 West Fifth Street Suite 4600 Los Angeles, CA 90013-1025 (213) 243-2810 Attorneys for Burbank, Glendale, Pasadena and Imperial Irrigation District Dated: July 26, 1994 CERTIFICATE OF SERVICE I hereby certify that I have this day caused a copy of the foregoing document to be served on all known interested parties of record in R.94-04-031 and I.94-04-032 by mailing by first-class mail a copy thereof properly addressed to each such party on the attached service list. Executed this 26th day of July, 1994 at Los Angeles, California. ________________________________ Barbara Prenatt LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55 - 9 - TABLE OF CONTENTS Page No. I. A SIMPLE, YET EFFECTIVE REFORM: ELECTRONIC BULLETIN BOARD POSTING OF WHOLESALE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 2 II. ANY POWER POOL SHOULD BE VOLUNTARY . . . . . . . . . . . . . . . . 5 III. THE COMMISSION SHOULD CONSIDER THE INTERACTION BETWEEN GAS POLICIES AND ELECTRIC POLICIES. . . . . . . . . . . . . 6 A. Information About Contractual Arrangements Should Be Publicly Available. . . . . . . . . . . . . . . . . . . . . 6 B. The Commission Should Reject Proposals for Anti-competitive Rates. . . . . . . . . . . . . . . . . . . 7 C. Short-term Electric Generation Competition Requires that California Electric Utilities Not Be Put at a Fuel Cost Disadvantage. . . . . . . . . . . . . . . . . . . . 7 IV. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 LAMAIN Doc: 79108.1 Printed: 07-31-94 10:55