The Federal Energy Regulatory Commission (FERC) has approved a request by the California Power Exchange (PX) to postpone the formation of a competitive electricity market in California to 31 March 1998. According to the original plan, California’s US$20bn power market was to be deregulated by 1 January 1998. The decision to delay the opening of the auction was made by the PX Board of Governors after consultations with the Independent System Operator (ISO), investor-owned utilities and other market participants.
The delay was proposed to allow the PX system to be adequately tested and to iron out computer software and hardware problems, as well as to provide more training for operating personnel. The price tag for the delay is estimated at US$400 000 a day.
The new starting date allowed for a 15-day notification to the FERC that all systems are functional, tested and ready to go. In addition, the schedule includes end to end market simulation during which the PX and the ISO must achieve seven days of successful results.
When the market is opened in March, California’s big electric utilities will be competing for customers with companies such as Houston-based Enron Corp and other independent power producers. The big utilities – PG&E Corp’s Pacific Gas & Electric, South Californian Edison and San Diego Gas – will still be responsible for delivering the power. For its part, Enron has offered two weeks of free power for customers who sign up for a full year of service.
So far only a small percentage of buyers have opted for utility competitors, but the numbers are expected to grow. Initial estimates from state regulators have the average household’s electric bill dropping from US$5 to US$10 a month as a result of deregulation.
In 1997, California legislators created two non profit corporations, the California Power Exchange and the Independent System Operator, to help implement the deregulation of the electricity market in California. PX, located in Alhambra, California, is organized as a centralized exchange, open to any electricity buyer or seller. Through an open auction process, it will provide the market clearing price for electricity in California. In the deregulated market, the Independent System Operator would control the power grid, formerly operated by the state’s three big investor-owned utilities. The ISO is also expected to start up on 31 March 1998.
While California has taken the lead in deregulating power markets, other states, including Pennsylvania and New Jersey, have similar plans. Most other states have also started looking at allowing competition for retail power sales.