Enhancing Cal-SO Price Cap Power Draws Fire
Independent power marketers have denounced efforts by the
California Independent System Operator (Cal-ISO) to extend its
purchase price cap authority, fearing it would give the Cal-ISO
"unfettered" control over wholesale electric market prices in the
state. But California investor-owned utilities, Southern California
Edison and Pacific Gas and Electric, and the California Power
Exchange (Cal-PX) and California Electricity Oversight Board see an
upside to the Cal-ISO's request.
At the center of the debate is Amendment No. 31 in which the
Cal-ISO seeks to extend indefinitely its authority to disqualify
bids in the imbalance energy and ancillary service markets that
exceed specified levels. Its ability to impose the so-called
purchase price cap, which currently is set at $250/MWh, is due to
expire Nov. 15. The Cal-ISO also asked FERC to confirm its
authority to impose price caps for all of its markets without first
seeking Commission approval.
"The Commission should view this proposal with alarm. It
represents a serious set-back indicating that the [Cal-ISO] is
attempting to use price caps as a permanent crutch that operates in
lieu of its pursuit of a long-term structural solution" for the
dysfunctional California bulk power markets, said PPL Montana LLC
and PPL EnergyPlus LLC, adding that FERC should reject the
"indefinite continuation of price caps" being proposed by the
When the Commission first granted the Cal-ISO price-cap
authority, the ISO pledged that it would propose a plan by the
summer of 2000 to eliminate the need for price caps, the PPL
companies noted. "The ISO now chooses to ignore its commitment..."
Giving the Cal-ISO "open-ended" authority to levy price caps
would be counter-competitive, the PPL companies further argue. "At
a time when regulatory efforts to remove monopolistic practices in
the electric industry are well underway, giving the ISO the
authority it seeks to establish prices at its discretion would, in
essence, authorize it to monopsonize California's markets."
The Cal-ISO's "blanket authority request is broader than any
authority ever issued by the Commission and could set a dangerous
precedent," warned Dynegy Power Marketing Inc. In a previous order
this year, FERC left intact the Cal-ISO's discretion to set the cap
at whatever level it deemed fit, believing that the Cal-ISO-run
markets generally make up only 10%-15% of the sales in California
markets, Dynegy noted. However, that rational has one "critical
flaw" - specifically, the Cal-ISO's purchasers' cap has
historically acted as a de facto cap on the Cal-PX markets, whose
volume often totals 75% to 80% of the state's electric markets, it
Duke Energy believes it is crucial for FERC to retain a sunset
date on price caps, and to conduct periodic reviews of the need for
price caps. In fact, it said the Commission should require the
Cal-ISO to justify prior to next March 31 why any price caps should
be maintained in the California bulk power markets.
Giving the Cal-ISO's governing board - which continues to
"succumb to political pressure" from California legislators and
Gov. Gray Davis - sole authority to impose price caps would upset
the California electric market even further, Merrill Lynch Capital
Services Inc. said. "Allegations of political arm-twisting and
threats to purported 'independent' members of the board were
widespread this summer and caused great concern about the integrity
of the markets among market participants."
The Cal-PX said it conditionally supported the Cal-ISO's
request, saying the ISO needs the authority to impose price caps in
its real-time markets in the event they are need. However, it said
it was concerned that price caps levied by the Cal-ISO "should not
create disincentives for use of the forward markets for energy and
ancillary services in California." It asked FERC to "carefully
monitor and condition any authorization" granted to Cal-ISO to
prevent this from occurring.
Southern California Edison also backed the Cal-ISO's request.
The "ISO's purchase price cap is the only thing now standing
between California consumers and the ability of sellers to set
'extremely high prices.'" It believes the Cal-ISO should continue
to have the authority to disqualify artificially inflated bids
until the California power markets become "workably competitive."
However, Edison conceded Amendment No. 31 isn't a cure-all. It
"will merely maintain the status quo, and the status quo consists
of a market that is not workably competitive and that results in
prices that are unjust and unreasonable, even with the existing
$250/MWh purchase price cap."