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California to blame for energy prices, experts say

California's flawed deregulation process is to blame for skyrocketing energy prices, not suppliers such as British Columbia Hydro and Power Authority, which are simply exploiting a hot market to rack up big profits, experts say.

"If you design a system and people are bidding into it, you don't turn around and say, 'Gee, you didn't bid the right way,'" said Mark Jaccard, an associate professor at the school of resource and environmental management at Simon Fraser University in Vancouver. "You set up a system where the bids satisfy your objectives."

Mr. Jaccard was responding to a recently released study by the California Independent System Operator (Cal-ISO) that found widespread evidence of strategic bidding on the California real-time, or spot, market from May to November of last year.

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The study reviewed the bidding practices of 21 power suppliers, including B.C. Hydro and several other government-owned utilities, and found suppliers used "well-planned strategies to ensure maximum possible prices at all load conditions."

The study concluded those strategies, such as holding back energy supplies from being scheduled into the market, increased prices for consumers and allowed suppliers to earn allegedly excess profits.

The study did not allege any "manipulation" or "collusion" by suppliers.

Mr. Jaccard, the former chairman of the B.C. Utilities Commission and a proponent of deregulated energy markets, said California set up its system without ensuring that new supplies would be available or safeguarding against market manipulation.

Those oversights, he said, have created a market ripe for the kinds of strategic bidding practices, and resulting price spikes, outlined in the Cal-ISO report.

Those practices include so-called "gaming," where suppliers submit bids based on their expectations for the market, rather than on their generation costs, or hold back part of their available capacity from bidding or scheduling into the market, Mr. Jaccard said.

According to Cal-ISO's report, such strategies force the system operator to buy more expensive power to meet demand, and lead to higher final prices.

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On Thursday, B.C. Hydro denied allegations that it helped inflate prices and earned excess profits.

B.C. Hydro chairman Brian Smith said the utility's export arm, Powerex, "has used its supply portfolio, including hydroelectric power exported from the B.C. Hydro system and power acquired in the U.S. wholesale market, literally to keep the lights on [in California]when the ISO needed power most."

Mr. Smith said the Cal-ISO study ignored several factors, including a desperate supply situation and transmission bottlenecks.

He added that Powerex hopes to continue to provide power to California, even though British Columbia is facing the worst water conditions it has seen in 20 years because of low snowfall. That will affect the amount of hydroelectricity the utility can generate.

B.C. Hydro has enjoyed windfall profits from selling power to California over the past few years. For the year ended March 31, the utility is forecasting electricity trade revenue of more than $5-billion.

But some of that money will be difficult, or impossible to collect. B.C. Hydro is owed more than $300-million (U.S.) by California utilities Pacific Gas and Electric Co. and Southern California Edison Co. PG&E filed for bankruptcy protection earlier this month. California government officials have been working with troubled Southern California Edison and hope to prevent another bankruptcy.

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A water shortage in the Pacific Northwest is expected to worsen the energy crunch this summer.

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About the Author
National correspondent

Based in Vancouver, Wendy Stueck has covered technology and business and now reports on British Columbia issues including natural resources, aboriginal issues and urban affairs. More

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