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Palo Verde Hub
WHOLESALE TRENDS

Southern California gets its power from the Palo Verde Hub, a wholesale market which also serves Arizona and the southwest. Although there had been some small summertime price spikes in this market in 1997 and 1998, prices took off in the spring of 2000 and have stayed high ever since. The high prices in San Diego were initially attributed to the fact that San Diego Gas & Electric was forced to buy power on the short-term market to cover immediate demand. In the summer of 2000, the California Public Utilities Commission allowed the California utilities to enter into contracts to set rates for up to 5 years in an attempt to alleviate price volatility. However, the prices on the wholesale market have remained high.

Wholesale Energy Prices

SAN DIEGO CALIFORNIA BILLS

The California electric power industry was officially opened to market competition on March 31, 1998 and control of 70% of the state's power transmission lines was transferred to the California Independent System Operator. Since market competition was expected to drive down rates, utilities demanded that restructuring include guaranteed prices for four years so that their financial obligations could be met. When San Diego Gas & Electric sold off several power plants substantially above book value, it no longer needed this protection and proposed to end its rate freeze two and a half years early--on July 1, 1999. Thus San Diego became the test bed for California's utility deregulation.

Because price caps for residential rate payers were lifted by San Diego Gas and Electric, wholesale price rises were passed on to consumers' bills. In Southern California, this customer's total bill doesn't look like it has risen that much, but the rates actually went up from about 3 cents to 21 cents per kilowatt hour -- 700 percent. Her bill would have gone up from $59.64 in March, 2000 to $125.25 in January, 2001. However, this rate payer does not have to pay this entire amount. Responding to public outrage, Governor Davis approved a plan to limit rates for to $75 per month until December, 2001. This limit applies to customers who use less than 500 KwH per month. This appears on the customers bill as an electric energy rate adjustment -- this customer got a $87.09 credit. Barring further action, prices will likely rise when these rate adjustments expire in 2002.




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For more information, the Department of Energy offers a fact sheet on electricity retail rates and more details on restructuring activity in California.


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