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Cal-PX Asks FERC for Price Caps in Continuing Power Crunch

Cal-PX Asks FERC for Price Caps in Continuing Power Crunch

While acknowledging behind the scenes that immediate help from Washington was unlikely, the California Power Exchange (Cal-PX) last week prepared to put in a bid for a temporary $350 a MWh price cap as the state suffered through another week of short power and high prices.

Reversing its past policies, the Cal-PX board last Wednesday authorized the state-run wholesale spot power market to seek federal approval for the cap on its day-of and day-ahead markets as a means of lessening the peak-demand price volatility.

However, a source close to the Cal-PX said the move was mainly for local political consumption, and the Federal Energy Regulatory Commission is not expected to approve the caps. "The Cal-PX has pretty much been told that FERC is unlikely to do anything with the request," the source said. "What the board is doing is making the request, but until FERC acts, there will be no changes in the Cal-PX markets."

California officials noted that at least three FERC commissioners have indicated that aside from their ongoing investigation of potential market abuses and wholesale bulk market issues, they will continue to look to the California Public Utilities Commission and legislature for solutions to the state's electricity market problems. In an interview with NGI last week, FERC Chairman James Hoecker said the agency was speeding up its investigation, but said the main remedies lie with California creators of the system, which operates differently from ISOs in other regions. (See related report, this issue).

The Cal-PX pointed to the move by the California Independent System Operator (Cal-ISO) to lower its price cap on emergency power purchases to $250/MW as reason for the exchange to take some action. Cal-PX asked FERC for the $350/MW price caps as soon as possible and establishes them for expiration at the time the Cal-ISO's FERC-granted price cap authorization expires. The reason for the higher Cal-PX cap is to discourage power generators from holding back power supplies from the Cal-PX market to sell them in the usually higher-priced Cal-ISO spot market.

California last week endured yet another week of hot weather statewide that necessitated power watches and alerts the first four days of the week with reserves dropping below the 5% level each of those days. Up to 2,000 MW of generation were out of service and curtailment by large industrial and commercial customers was imperative, along with much-needed power imports from the Pacific Northwest.

San Diego Gas and Electric told its 1.2 million customers at mid-week that "rotating, one-hour service interruptions" (rolling blackouts) were a possibility that could involve "portions of (its) service territory."

SDG&E sponsored full-page local newspaper advertisements that clearly lay blame for California's predicament this summer on a wholesale electricity market that is "broke" and allegedly greedy out-of-state merchant power generators, naming Reliant, Dynegy and Southern Company among the offenders. The ads argue that FERC can help solve the problem, and encourage consumers to write to federal officials.

"California is facing a power emergency," part of the ad text stated. "We've got a critical supply problem. And out-of-state power generators are taking advantage of us by charging outrageous prices for electricity. We need a national solution." Almost every paragraph of the text had a reference to the merchant generators, and in one reference they were accused of "gouging" consumers and in another of charging unfair prices.

A Houston-based spokesperson for Reliant Energy said the ad and other communications are "totally wrong" when they contend that the California merchant plant operators asked FERC to lift the price cap. Instead, Reliant's Richard Wheatley said, the generators' filing is to assure the plant operators can recover their costs if under emergency situations they are forced to bring in replacement supplies that cost more than supplies they sold earlier out-of-state under long-term contracts. (See related report, this issue).

The merchant generators under the state coalition of independent power producers will begin their own advertising campaign this week to counter the misinformation, said Wheatley.

In separate communications on the continuing power problem in the northern part of the state, Pacific Gas and Electric reported that the California-based small qualifying facility (QF) power plant operators that sprang up throughout the state over the past two decades are reaping record profits from the high number of peak-demand days this summer.

Last Wednesday under Cal-ISO orders, some 1,500 MW of commercial/industrial customer load was curtailed in the afternoon. These so-called interruptible customers get a lower rate for their power in exchange for having to reduce or curtail their usage when stage two alerts are called.

Southern California Edison made its now frequent and urgent appeal to its 3.5 million customers to cut back their usage. Edison's senior vice president for customer services, Pam Bass, said rolling blackouts (Stage Three alert) could be avoided by customers voluntarily reducing their use as much as possible.

A special meeting of the California Public Utilities Commission will be held today to respond to urgings by the governor and legislature to reintroduce price caps in San Diego and take other steps to relieve the SDG&E customers who have seen their summer electric bills double and triple (see NGI, Aug. 14).

Among the items to consider are options for freezing and capping retail rates for SDG&E customers. One proposal would simply do as Gov. Gray Davis has requested - freeze rates (110% of June 1998 levels) and establish a balancing account. The alternative proposes capping monthly bills for residential customers' with loads under threshold amounts of 500 Kwh monthly, and 1,500 Kwh monthly for businesses. That amounts to about 70% of the residential and small business customers in San Diego.

SDG&E is opposing retail rate caps/freezes in both the legislative and regulatory arenas on the legal basis that those retail moves would be in conflict with FERC-established wholesale rates, and as such, would be in conflict with federal law. In a conference call with the financial community last week, SDG&E's parent company, Sempra Energy, stressed this legal assessment.

"We see this problem as essentially a wholesale generation issue that ultimately has to be solved at the federal level," Sempra's Senior Vice President Fred John told financial analysts.

Richard Nemec, Los Angeles

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