Given the recent price spikes in the Midwest and Californiaelectricity markets, a California power agency has called onCongress to take the necessary steps to rein in unleashed marketpower when it takes up restructuring legislation next year.

“In early July, the California independent system operator(Cal-ISO) was forced to accept bids for certain ancillary servicesneeded for system reliability that were more than 3,500% above thenormal cost of providing those services,” the Northern CaliforniaPower Agency (NCPA) said in a July 28th letter to Rep. ThomasBliley (R-VA), chairman of the House Commerce Committee.

Documents filed at FERC contend the “dramatic” price spikes werethe result of excessive market power, the agency reported. Onlyfour companies – those that recently bought divested generatingassets from California’s private utilities – have the authority tocharge market rates for these ancillary services, it said.

“It appears that excessive market concentration, insufficientmarket participants, and a flawed market analysis are responsiblefor this non-functioning market. Further complicating the problem,the state’s publicly owned electric utilities have, for the mostpart, been purposefully excluded from participating in the ISO’sancillary services market,” said NCPA, which provides generation,transmission and distribution services on behalf of 15 cities inthe state.

A “Band-Aid” has been applied to prevent more price spikes: FERChas imposed a price cap on these ancillary services and requested areport by the Cal-ISO and Power Exchange on the market structure,it noted. But NCPA questions whether this will be sufficient.

“Behavioral remedies, such as price caps, reduce the potentialfor abuse, but they do not solve the underlying problem. SouthernCalifornia Energy and San Diego Gas &amp Electric complained toFERC that the price cap merely reduces the severity of exorbitantpricing. Structural solutions – facilitating true competitivemarkets – is both more effective and ultimately less intrusive.”

Susan Parker

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