Cal-ISO Asks FERC To Impose $100 Caps
The California Independent System Operator (Cal-ISO) Friday
filed with the Federal Energy Regulatory Commission urging steps be
taken, including creating a $100/MWh payment price cap and
penalties for noncompliance, to encourage a return of more supplies
into the forward, as opposed to the real-time spot, market. Cal-ISO
CEO Terry Winter took this action without his governing board's
Cal-ISO's filing is suggesting that FERC mandate that the
generators sell set percentages of their output in the forward
market, rather than holding back for the real-time, higher-priced
market. The state-chartered, nonprofit California transmission grid
operator is hoping to get more favorable prices by tying up set
amounts of power in the forward markets because the generators can
then spread their costs over more hours of generation than they can
in the emergency, real-time market.
"We are trying to put in front of FERC a proposal that will work
with all of the other proposals they are considering in the current
expedited time frame," said Winter, who added that he doesn't think
Califonia's market is being "gamed," but it has rules that need to
be changed to permit a truly competitive market.
"The lack of forward contracting and scheduling means the
California ISO is making up for huge shortfalls ten minutes before
the power is consumed." The plan suggests requiring utilities to
contract for 85% of their customer requirements in advance of when
they are needed.
The ISO's plan, which was advanced as a discussion platform,
would institute a payment cap of $100 in all markets with some
exemptions. Exempt would be generators that can prove they will
lose money if capped at that rate; generators that contract 70% of
their supply to serve California customers, renewable generation;
facilities producing less than 50 MW, new power plants and imported
power. The existing $250 MWh price cap would still exist and serve
as the absolute price ceiling for all transactions.
"This proposal would take the ISO back to its original mission
of operating the markets of last resort, allowing ISO operators to
focus on maintaining reliability of the power grid," Winter said.
In Washington last Thursday the Federal Energy Regulatory
Commission took what it called the "unusual step" of announcing its
schedule for achieving an order by the end of this year to remedy
California wholesale electric pricing problems. Drawing on an
ongoing staff investigation and informational hearings the
commission held in San Diego in September, FERC will hold sessions
Nov. 1 and 9 to release its proposed remedies and discuss them.
FERC's action comes amid a number of requests and political
pressure for federal help by California officials, utilities and
energy companies --- including the latest from the ISO and one
earlier in the week from the state's largest electric utilities and
their usual adversary, The Utility Reform Network (TURN), a utility
watchdog group. The utilities and TURN made a joint FERC filing
Oct. 16 seeking a $100 across-the-board cap on all wholesale
electricity prices and for longer term fixes, including a
declaration that the state's electricity market is unworkable under
its current framework.
Winter agreed with the description. "As a marketplace we were
not smart enough to anticipate everything that people (generators
and marketers) have come up with now after the fact. The real
problem is still a scarcity of supply. The idea now is to keep
people out of the (emergency) real-time market (run by Cal-ISO) and
make them work forward (in the California Power Exchange, or
Winter said what he called a "flurry of filings" from California
interests at FERC this week "is extremely good, putting the
discussion clearly in front of FERC and allowing everybody's ideas
to be reviewed. In this forum people can come to agreements that
will move this forward and protect California from high prices next
summer." (Nevertheless, a separate FERC filing Friday from one of
the state's major utilities, San Diego Gas and Electric, proposed
that Cal-ISO's structure, operations and governing board be
In noting the prospect for a federal resolution, Winter said
everyone must realize that both price increases for emission
controls and natural gas are also contributing to the continuing
high electricity prices in the state, which he said are staying
above $100/MWh, despite statewide electricity peak-demand that is
only about 60% of its summer levels.
For natural gas, Winter characterized the situation as one in
which prices have increased "dramatically, while supply is
radically down," meaning next summer will be "extremely difficult"
for the state.
The goal for Cal-ISO is to shrink the real-time market it runs,
which has been accounting for about 20% of the load, to less than
10%, and ideally 5%.
The petition by Pacific Gas and Electric, Southern California
Edison and TURN --- mirroring requests made earlier to FERC by
Sempra Energy's San Diego Gas and Electric --- asked the federal
regulators to replace the price caps with long-term "market power
SDG&E last Friday made its own filing in support of the
emergency measure, calling for "swift and immediate action in
addressing the FERC fundamental structural defects in California's
deregulated marketplace and outlining 17 "fundamental structural
reforms" in the state's wholesale market, including restructuring
the Cal-ISO governing board and operations.
"Despite the cooler weather and lower statewide demand we
recently have been experiencing, the high wholesale electric prices
our customers endured this summer are not subsiding," said
SDG&E' Chairman Edwin Guiles. As it has several times
previously, SDG&E proposed that FERC adopt interim cost-based
bid caps for power suppliers selling into California's wholesale
Edison's John Fielder, a senior vice president, cited the
example of a recent Sunday, Sept. 24, when prices reached $150/MWh
even though "demand was relatively low" (about 60% of what it was
on peak summer days). The utilities and consumer group are asking
FERC to also look at the question of refunds of this summer's power
costs that have exceeded the retail rates the utilities are allowed
to charge by about $5 billion so far.
Another indication that the California market's problems won't
be over for awhile came last week from the federal hydropower
marketer in the Pacific Northwest, Bonneville Power Administration
(BPA), which said it would have no electricity supplies to sell
into California in the next two or three years.
"We have always relied on power from the Northwest and it has
certainly been dwindling," Winter said, commenting on the
announcement. "This has us very, very concerned. I am not sure
whether they are talking in terms of peak-demand energy or just in
general terms. In any event, it really highlights the more regional
nature of this problem.
"One of the other fears I have is not just the natural gas price
increases, but also the availability of gas supplies into
California. As we add all of this new (gas-fired) generation here,
we are certainly going to be taxing the infrastructure of natural
gas, just as we have taxed electricity on the transmission site."
Winter acknowledged that generators and marketers will oppose
additional price caps and penalties, such as the ones the Cal-ISO
is proposing, noting that he, personally, would rather rely on the
market. However, he thinks California's situation is sufficiently
out of hand to warrant caps on a interim basis.
Richard Nemec, Los Angeles