In the latest death knell for California's failed experiment in deregulation, the Power Exchange where electricity has been bought and sold announced yesterday that it is getting out of the energy business.
The move, which follows a decision by the exchange last week to lay off 25 employees, effectively ends the state's hope of creating a competitive marketplace in which power generators compete with one another to sell power to utilities.
Meanwhile, officials at the California Public Utilities Commission were scrambling yesterday to put the finishing touches on an audit of Pacific Gas and Electric Co.
A separate audit of Southern California Edison was released Monday night. It essentially supported what the utility has been saying for weeks: that it is on the verge of running out of cash.
Jesus Arredondo, a spokesman for the Power Exchange, said a central wholesale electricity market became irrelevant when federal regulators imposed limits on prices and allowed utilities to seek direct deals with generators.
"Unfortunately, people never understood how this market worked," he said.
The exchange will broker its final deal at noon today.
Aside from long-term contracts between utilities and generators, the daily spot market will be coordinated by the Independent System Operator, which oversees the state's energy network.
Since wholesale electricity prices spiked last summer, causing some consumers' bills to triple, the Power Exchange came under fire for what critics said was a system that allowed power generators to manipulate prices and gouge customers.
The exchange also found itself on the defensive over a rule that allowed all generators to sell power at the level of the highest bid.
The rule was originally intended to encourage participation in California's market by multiple bidders, but it became a symbol of how legislators had erred in drafting the state's deregulation blueprint.
"It was a flawed exchange," said Linda Sherry, a spokeswoman for Consumer Action in San Francisco. "It was rigged to never work."
The exchange was investigated by state and federal authorities, but no evidence of wrongdoing on the part of generators was ever found. Still, exchange officials conceded that individual generators could legally inflate prices as long as they did not collaborate with one another.
PG&E now pays more than $300 per megawatt hour for wholesale power. A year ago, the utility paid just $40.
Officials in Oregon and Washington announced yesterday that they too would look into whether power generators had illegally manipulated prices. They did not specify which generators would be investigated.
"A situation not of our making has forced us to wind down our operations, and today we are continuing the downsizing process," said the exchange's president, George Sladoje.
The Power Exchange will lay off more of its remaining 150 workers in coming days, Arredondo said. Future operations, he said, will consist chiefly of collecting outstanding power payments from PG&E and Edison.
Edison already has defaulted on a $215 million payment. PG&E has a $583 million bill due tomorrow, but was negotiating this week to make only a partial payment.
The PUC will use the audits of PG&E and Edison to decide what, if anything, should be done to rescue the utilities from the brink of bankruptcy.
The utilities have argued that higher rates are needed so that customers can pay off $12 billion in debt incurred in the wholesale power market. State regulators are still trying to determine whether that cost should be borne by consumers.
The mood at the Power Exchange, based in Pasadena (Los Angeles County), was tinged with bitterness yesterday. Arredondo said exchange employees felt that their efforts were unappreciated by California consumers.
"We worked as hard as we could to provide everything the market requested," he said.
Going forward, Arredondo said, the state will miss the exchange's guiding hand as California enters into contracts with generators to buy power on behalf of cash-strapped utilities.
"This may have unfortunate consequences down the road," Arredondo warned. He did not elaborate.
E-mail David Lazarus at dlazarus@sfchronicle.com
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