Mountain Time and the Looming Mountainview Slide

Geologic time and market time run on two very different clocks. Both can be brutal, unpredictable, and evolving. Take the glacier-carved Fallen Leaf Lake, above Lake Tahoe: the dark-blue lake is surrounded by granite mountains covered with Jeffrey pine and fir trees, interspersed with patches of golden-leafed aspen. It's been shaped over millions of years by geologic processes, from uplifting to floods. A stone's throw away from the lake was a gathering this week, in a conference sponsored by the Independent Energy Producers (IEP), of hardy survivors of California's massive 2000-2001 market temblor. Like the lake-surrounding scenery, they have been shaped and scarred by the upheaval, which barely registered on the geologic clock but cost billions of dollars, and unlike the Sierra lake's outcome, it was not a pretty sight. The biggest fear expressed at the conference was that Southern California Edison will set off an anticompetitive avalanche if the California Public Utilities Commission allows it to move ahead with its option to buy Intergen's 1,054 MW Mountainview power project. The generators' cries, however, seemed to fall on deaf ears. "In a perfect world there should be competitive bidding, but we don't live in a perfect world, and Mountainview should not be a rallying cry" for independent generators, said Mike Peevey, CPUC president. According to Peevey, the bottom line is: Who can build power plants cheaper, private utilities or independent producers? "All decisions should be made in the context of value to ratepayers," he added. The generator community sees Edison's move to return to the power plant-buying business as a dangerous precedent. They vehemently object to the proposal, which is on an accelerated time frame and is not being put to the competitive test. Because the project's price tag is confidential, there is no way to tell whether is it a good deal, warned Doug Kernner, attorney with Ellison, Schneider & Harris. It also involves allowing Edison to buy the plant output from an affiliate for 30 years and getting a no-risk, guaranteed 12 percent rate of return, according to IEP. After a history of being burned by the CPUC over competition with utilities?particularly Edison?free-market generators questioned Peevey's rationale. The Mountainview proposal is "unique," explained Peevey, adding it was "not a model to be replicated." "Mountainview is not a foot in the door" for Edison and other investor-owned utilities to expand their generating business, said Edison's sole representative, unflappable senior vice president John Fielder. He said the Mountainview proposal would allow Edison to meet rising demand and fill the supply gap left by replacing aging, inefficient power plants. Much to the generators' consternation is the fact that the ratepayer advocate group, The Utility Reform Network, might back the deal. "There are some very attractive elements," said Matt Freedman, a TURN attorney who is on the committee reviewing that confidential matter. TURN may support the move if it is good for small ratepayers, but Freedman noted that given how fast it was being pushed through, "it is looking like a game of chicken." Direct access, California's high electricity rates, federal efforts to create market stability, and Wall Street investors continued to be themes stuck between the yet-unattainable peaks for the segment of the market represented at Fallen Leaf Lake. IEP members are divided on whether to support direct access, with some willing to sell power to utilities and others hoping to sell to businesses and other entities that consume a large amount of megawatts. The California Manufacturers and Technology Association (CMTA) continues to lament the demise of direct access. Dorothy Rothrock, CMTA lobbyist, said manufacturers have taken a huge beating in this sour economy and because of recall fever, which has pushed Governor Gray Davis to support measures the association strongly opposes, including one requiring employers to provide workers with health insurance. She said given the state's high electricity rates, the ongoing squelch of direct access is pushing businesses out of the state more quickly. Edison's Fielder commented that California' electricity rates will always be 50 percent higher than in other states because of the nature of the load and system. "If manufacturers make economic decisions on electrical rates, I don't know why any manufacturer would remain in California," he added. TURN is not opposed to reestablishing direct access, according to Freedman. The consumer organization would not fight big companies ditching the utilities as long as residential ratepayers and small businesses were not saddled with the huge costs of the power contracts the state locked in during the energy debacle. "Large customers don't care about choice, they care only about price," he said. The surrounding scenery did from time to time rub off on the conference participants, particularly during calls for long-sought regulatory reforms at the state and federal levels to stabilize the market and attract capital back into it. Market reform is moving at a "glacial pace," bemoaned Jan Smutny-Jones, IEP executive director. The much-needed regulatory certainty continues to be waylaid by politics, he added. "The luxury of time is not on our side," Nora Brownell, Federal Energy Regulatory Commissioner member, warned. She noted that tremors during a transition to a deregulatrf market were to be expected. "You have to know the difference between an unstable market and reasonable economic volatility." Brownell said the evolving market would continue to be a mix of regulated and unregulated market players for the next few years, adding that FERC was working toward improving monitoring and information sharing with states. Bob Weisenmiller, a principal with MRW Associates, noted that credit-rating agencies continue to look "for predictable, rational, and adult regulations." He also pointed out that the current lending environment in the power business involves less leveraging and the absence of cheap capital. In addition, the financing of power plants requires that there be long-term agreements on the output. Senator Debra Bowen (D-Redondo Beach) blamed much of the stalled reform at the state level on term limits?with the resulting crop of lawmakers' knowledge of energy policy being largely limited to crisis headlines. She added she often felt as if she were moving between two massive boulders, one being capitalism run amok and the other being overly bureaucratic regulations.

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Mountain Time and the Looming Mountainview Slide

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