US takes a leaf out of UK's book

When McKennas was appointed to advise on the introduction of electricity comp- etiton in California in January, the US Federal Energy Regulatory Commission (Ferc) set a 31 March deadline for filing the necessary documentation. This meant that the work had to be completed within 10 weeks.

The firm all but re-wrote documents inherited from California's three major privately-owned utilities. These had been under development for several months and suffered from drafting by committee. At the same time the firm had to consult and negotiate with more than 200 interested parties on Ferc's mailing list.

The restructuring of California's electricity industry was driven partly by the state of California and partly by Ferc, which had issued a rule requiring utilities that owned or operated transmission systems to allow open access to their systems.

McKennas was advising the trustee who would be responsible for two new independent non profit-making corporations, the Independent System Operator (ISO) and the Californian Power Exchange.

Together, these bodies were designed to ensure competition in the supply of electricity to Californian consumers and operating rules, and procedures (or 'tariffs') had to be drafted for them.

Control (but not ownership) of the transmission systems of the three main privately-owned Californian utilities is to be transferred to the ISO to create a combined grid.

The ISO tariff obliges the body to operate the new grid in a fair and non-discriminatory manner.

Electricity consumers will, subject to phasing-in provisions, be able to buy electricity from the generator of their choice through a scheduling co-ordinator - a trader in the new market who will be subject to certification by the ISO.

Alternatively, electricity can be bought through the Californian Power Exchange. The exchange will operate a market similar to the electricity pool in England and Wales.

While trading through the exchange is not mandatory, the three major utilities will be obliged to sell it all of the power they generate and to buy energy back from it for the initial four years of operation.

The California electricity trading model is more sophisticated than that in England and Wales: there will be three distinct markets in energy - day ahead, hour ahead and real time plus a daily auction for ancillary services.

The right to use congested transmission paths will be allocated to electricity buyers prepared to pay the most.

When drafting the bylaws of the two entities McKennas had to strike a delicate balance between allowing broad representation of industry participants and ensuring that no one participant would have the power to influence the market.