Congress Urged to Focus on Electric Market-Power Issue
Given the recent price spikes in the Midwest and California
electricity markets, a California power agency has called on
Congress to take the necessary steps to rein in unleashed market
power 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 services
needed for system reliability that were more than 3,500% above the
normal cost of providing those services," the Northern California
Power Agency (NCPA) said in a July 28th letter to Rep. Thomas
Bliley (R-VA), chairman of the House Commerce Committee.
Documents filed at FERC contend the "dramatic" price spikes were
the result of excessive market power, the agency reported. Only
four companies - those that recently bought divested generating
assets from California's private utilities - have the authority to
charge market rates for these ancillary services, it said.
"It appears that excessive market concentration, insufficient
market participants, and a flawed market analysis are responsible
for this non-functioning market. Further complicating the problem,
the state's publicly owned electric utilities have, for the most
part, been purposefully excluded from participating in the ISO's
ancillary services market," said NCPA, which provides generation,
transmission and distribution services on behalf of 15 cities in
A "Band-Aid" has been applied to prevent more price spikes: FERC
has imposed a price cap on these ancillary services and requested a
report 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 potential
for abuse, but they do not solve the underlying problem. Southern
California Energy and San Diego Gas & Electric complained to
FERC that the price cap merely reduces the severity of exorbitant
pricing. Structural solutions - facilitating true competitive
markets - is both more effective and ultimately less intrusive."
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