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 ) Governing Restructuring California's ) I.94-04-032 Electric Services Industry and ) Reforming Regulation. ) ) REPLY COMMENTS OF THE CITY OF VERNON, CALIFORNIA WITH RESPECT TO THE THIRD FULL PANEL HEARING Pursuant to the Assigned Commissioners' Ruling of July 8, 1994, the City of Vernon, California ("Vernon") comments in reply regarding the wholesale electric market. The initial round of comments, as well as the late-filed exhibit of San Diego Gas & Electric Company, which describes an informal meeting to discuss wholesale market issues, reveals that much must be done before the Commission will be sufficiently informed to proceed with restructuring, if it is to proceed at all. Thus far, the com- menters have surfaced many interesting ideas, but little hard analysis has emerged. Few concrete proposals have been devel- oped. - 2 - I. Vernon remains concerned that issues regarding the post-restructuring reliability of the California electric in- dustry are given little more than lip service. Those who favor quick, radical restructuring with early retail wheeling and divestiture of generation assets have yet either to explain how reliability will be maintained or to identify the entities in the industry that will ensure its maintenance. It is unlikely that an independent power producer ("IPP") will be as concerned with keeping the lights on as is a franchised utility. Even if the IPP is as concerned, the question arises as to how an IPP would or could make certain the lights stay on. Vernon believes that it is possible for the Commission to achieve both reliability and efficiency--but only by looking carefully before taking the next step in this proceeding. The Division of Ratepayer Advocates ("DRA") correctly states that an important pool function is to assure reliable system operation (July 26 Comments at 13). II. The POOLCO proposal continues to offer promise although modifications may be required. Vernon agrees with Southern Cali- fornia Edison Company ("Edison") that control area services are services performed by a natural monopoly (July 26 Comments at 5). Included in control area services are dispatch of control area transmission and allocation of system condition (minimum load, - 3 - ramping, regulating room) curtailments of imports.*/ For ex- ample, Vernon urges the Commission to consider carefully the comments of the Coalition of California Utility Employees (June 8 Comments at 27) demonstrating that direct access cherry picking could exacerbate minimum load problems. Because minimum load conditions reduce non-firm energy imports, direct access may thereby increase costs borne by captive customers. Any attempt to create a truly competitive open access transmission system must vitiate the market power derived from this natural monopoly of control area services. Vernon and other of Edison's wholesale customers of Edison have long struggled to obtain fair dispatch of transmis- sion and a fair sharing of limitations on imports of electricity into the Edison control area. Those that oppose the POOLCO concept must recognize that the same self-interest conflicts per- ceived to exist in entities that own both generation and trans- mission that lead POOLCO opponents to support generation divesti- ture exist with respect to transmission and control area dis- patch. A control area operator will continue to have an interest in favoring dispatch for its customers of electric power over customers that merely purchase wheeling services. The dispatch- control area natural monopoly can be used to burden direct access competition just as it has been used to burden wholesale competi- tion. The Federal Trade Commission recognized the importance of */ These system conditions do not involve transmission capacity limitations per se, but rather are generation conditions that limit imports of electricity into a control area. - 4 - having an independent entity control the dispatch function (FTC June 8 Comments at 2). Those who oppose the POOLCO concept have yet to explain how they would provide for reliability and for non-discriminatory transmission dispatch and control area services. These are in- dispensable services which the Commission cannot ignore. III. A basic premise of deregulation is the potential for robust competition. Robust competition in turn is protected by vigorous application of the principles of the antitrust laws. Market barriers must be dismantled at the same time that regula- tion is relaxed. Vernon agrees with DRA that the Commission itself, to the extent it has legal authority, should provide a first line defense against anticompetitive practices. IV. Also, once again, Vernon joins those commenters urging the Commission to give heed to the limits of its jurisdiction. These limits are real and will not go away if ignored. An early phase of this proceeding should be devoted to jurisdiction is- sues. - 5 - CONCLUSION Vernon respectfully requests tht the Commission consid- er these and Vernon's previous comments in this proceeding in examining the California electric utility industry. Vernon ap- preciates the opportunity to submit these reply comments. Respectfully submitted, David B. Brearley City of Vernon, City Attorney 2440 South Hacienda Boulevard Unit 223 Hacienda Heights, CA 91745 Telephone (818) 336-3408 Arnold Fieldman Channing D. Strother, Jr. David C. Hjelmfelt Goldberg, Fieldman & Letham, P.C. 1100 Fifteenth Street, N.W. Suite 200 Washington, D.C. 20005 Telephone (202) 463-8300 Attorneys for the City of Vernon, California August 17, 1994 CERTIFICATE OF SERVICE I hereby certify that I have this day caused a copy of the REPLY COMMENTS OF THE CITY OF VERNON, CALIFORNIA WITH RESPECT TO THE THIRD FULL PANEL HEARING to be served in accordance with the special rules for service established herein, including in the June 9, 1994 order of Judge Malcom. Dated at Washington, D.C., this 17th day of August, 1994. Arnold Fieldman