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
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
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
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.