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FERC Aid Sought in Restoring $750 Price Cap in CA
Morgan Stanley Capital Group Inc., a power marketer, is seeking an emergency cease and desist order directing the California ISO's governing board to overturn its decision reducing the power price cap to $500/MWh and to restore the temporary $750 cap. It further has asked FERC to stay the ISO's price-cap authority, and to strip it entirely of that power when an existing resolution expires in October.
Given that the $500 price cap went into effect in California on July 1, Morgan Stanley has called on FERC to grant emergency relief and fast-track processing of its complaint [EL00-91]. At the very least, the Commission should convene an emergency technical conference to review the ISO's justifications for reducing the price caps for real-time and ancillary services in the California electric market.
The ISO's decision to lower the price cap was due to "blatant political pressure and not based on any cogent analysis [of the market], calling into question the independence of the Cal ISO," Morgan Stanley charged. "Market participants continue to operate under the threat that Cal ISO may again use its authority to order further price-cap reductions or otherwise extend this authority," it told FERC. The ISO board tried to reduce the price cap even further to $250 in late June, but was unsuccessful.
The California ISO took these actions in response to the severe power shortages that have plagued the region over the last couple of weeks, driving up prices.
In related action, Morgan Stanley also filed a complaint against the New York ISO for restricting access to its day-ahead and real-time markets to power generators and load-serving entities (LSEs), while excluding power marketers.
It asked FERC to direct the NYISO to make the needed tariff changes on an expedited basis to allow all market participants access to the two markets. It further requested that the changes be implemented by no later than July 31.
These restrictions "introduce unnecessary constraints on the marketplace, discourage trading and, in turn, significantly reduce the liquidity of the New York wholesale power marketplace," said Morgan Stanley.
In California, Morgan Stanley contends the lower price cap will have its heaviest toll on power marketers, such as itself, that "have hedged and made significant investments in the market [based] on a $750/MWh price cap." The financial benefactors of the Cal ISO's move will be local utilities and other entities that failed to "hedge responsibly" in the marketplace. Not surprisingly, these latter parties - the purchasers of electricity - are the ones that advocated the lower price cap, creating what "can reasonably be called a "rigged market" in the state, according to Morgan Stanley.
Electric customers also will pay the price, even though the ISO's board is under the "mistaken impression" that its action will help them. Morgan Stanley noted that investors make decisions about where to invest based on the long-term predictability in a region's regulatory regime. "When predictability does not exist, investment capital, such as that provided by [Morgan Stanley], will quickly move on to invest in other regions or markets where more certainty exists. This reaction is increasingly true given the acute need for investment in the development of electrical generation and the marketing of power across the nation and worldwide."
The ISO board's "hastily considered" decision to low power price caps "has had an immediate chilling effect on future capital investment" in the "developing, but already complex, competitive California power market," Morgan Stanley said.
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