Lynch Pulls No Punches on Mountainview

While a plan on the table gingerly sets a preference that Southern California Edison purchase the Mountainview power plant outright, California Public Utilities Commission member Loretta Lynch recently demanded that Edison directly own the unit, forfeiting the utility affiliate option. Under Lynch?s plan floated late last week, the project would need a certificate of public convenience and necessity, a requirement absent from the other plan. Edison is attempting to install new generation inits territory for the first time since the initiation of deregulation. Under Edison's plan, the utility would buy the plant and run it under a new affiliate that would be regulated as a merchant plant?that is, primarily under the control of the Federal Energy Regulatory Commission. However, Edison admits it has the funds to buy the plant outright and run it under the state-regulated utility. Lynch agreed with some critics who believe running Mountainview as a utility-owned plant would protect ratepayers from the vagaries of FERC oversight and eliminate potential affiliate abuses. Moreover, utility generation would be consistent with Lynch?s regulatory approach of more, not less, control over utilities. Edison?s plan ?ultimately delegates the regulatory control of the cost of the project to FERC,? said Lynch. Ratepayers need relief from high rates imposed during the energy crisis, she said. ?We are attempting to rectify these rate problems by reasserting control over many aspects of the electricity industry that were delegated to other entities? before the energy crisis, said Lynch. The potential for affiliate abuses is hard to estimate, reasoned Lynch, because the structure proposed by Edison for Mountainview is so unusual. Taking the affiliate option off the table eliminates thorny issues such as whether the CPUC?s moratorium on affiliate transactions applies. In a twist, a separate commission draft decision on procurement matters would make permanent the current moratorium on affiliate transactions. Though Edison had sent signals that it might pursue a utility-generation option, it has apparently backed away from this path. The commission?s ?mere promise of cost recovery? under direct ownership is not enough for Edison, the utility said December 8. However, Edison appeared to accept that it might be a condition and added that if the commission wants the direct-ownership rule, it should clarify ratepayer cost responsibility and duration. Asked to explain reasons for financial uncertainty given Edison?s admission in hearings that it has the cash flow to buy Mountainview outright, spokesperson Gil Alexander noted comments from an Edison official in hearings stating that the return on the Mountainview investment through the power purchase agreement is important for shareholders. Lynch sought to quell Edison?s concerns about financial certainty. She pointed out that the three major credit-rating agencies have given Edison investment-grade status. Energy policies being carved out in the CPUC?s procurement case will help shore up stability, she contended. Wall Street started ratcheting up Edison?s credit ratings in the last couple of weeks. On December 3, Standard & Poor?s raised Edison?s rating from BB to BBB . Like Lynch, Brown chafed at Edison?s proposed affiliate structure for Mountainview. But overall, the judge?s draft decision straddled aims of encouraging Edison to stick with the 1,054 MW project while trying to keep in sight ratepayer interests. In the end, Brown said it would be ?advantageous? to ratepayers for Edison to directly run Mountainview but stopped short of forbidding the affiliate option. The Mountainview draft and Lynch?s alternate decisions are up for a vote on December 18. Punting the Procurement Panel Lynch?s plan is one of three pending to revise the way utilities buy their power. Lynch would eliminate the ?procurement review group,? a body composed of nonmarket participants set up to analyze procurement data. Those data, however, now remain secret. Though initially useful, Lynch said, the review group ?created a fig leaf to cover the absence of open procurement processes.? Lynch?s alternate procurement decision released late last week also calls for ramping up the reserve requirement to 15 percent over four years. The reserve is the excess generation available to be called upon in emergencies and that gives liquidity to the wholesale market. In contrast, another decision on the CPU?s table would shore up reserves in three years, while a third would boost the reserve margin to 17 percent by 2005. While the other plans would allow utilities to set multiyear procurement contracts, Lynch would grant only one-year deals, while long-term issues are ironed out.

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Lynch Pulls No Punches on Mountainview

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