CA, NV Say Price Uncertainty Compounded Power Shortage

Confusion over the new FERC formula for pricing wholesale power during emergency situations in the West may have caused some generators to withhold supply from the California and Nevada markets early last week, aggravating the already-existing tight supplies in both states, power officials said.

The "withholding [of power] came at a critical time" last Monday in California, and "forced us into a Stage II alert," said Oscar Hidalgo, a spokesman for the Department of Water Resources (DWR), which is the chief purchaser of electricity for the state. The state "could have gone into a blackout very easily" if it hadn't been for the Bonneville Power Administration, which supplied it with 1,000 MWs for three hours that day, he noted.

Hidalgo contends four suppliers had backed out of commitments last Monday to supply about 600 MW to the California market at about $91/MWh, fearing that the price would be set much lower. He identified the companies as TransAlta Energy, a Canadian marketer and generator; Sempra Energy; Constellation Power Source of Baltimore, MD; and Public Service Co. of New Mexico.

The 600 MWs may not seem like much, Hidalgo conceded, but he added that it comes on top of the 3,500-4,000 MWs that have been "consistently offline every day" since last month.

Sempra denied that it withheld power from the market, and, in fact, said it wasn't scheduled to supply any power to the Cal-ISO during that time period. A spokeswoman for Constellation Power said the company had provided what was demanded under its contract with DWR, but it was unable to furnish any additional power due to the tight supply situation then. Public Service Co. of New Mexico said it diverted interruptible power sales from DWR to the more critical Nevada market, which was experiencing rolling blackouts Monday. The decision "was based on need, not on price," a company spokeswoman noted. Efforts to contact TransAlta were unsuccessful.

DWR alerted FERC by e-mail of "everything that happened" in the California market last Monday, said Hidalgo, and the agency responded that it hadn't found any evidence that suppliers had withheld power. But the Commission said it "still is monitoring [the situation] closely and clarifying the pricing points for the Cal-ISO," he noted.

Nevada, which was hit with a 45-minute blackout affecting nearly 10,000 homes in the Las Vegas area last Monday, suspects the new price controls may have been partly to blame. "We're concerned about whether price caps may have caused some hesitation" by suppliers to offer power to Nevada, said Paul Heagen, vice president of Sierra Pacific Resources, the holding company for Nevada Power Co. The market needed "clarity and speed" at that time, he noted, but "we felt there was a subtle hesitating...that we've not seen before."

But Heagen didn't want to point any fingers. "It may not be a matter of anyone doing anything wrong. It may be just an unintended consequence of price caps." In addition to the price controls, the Nevada market felt the sting of three other factors: generation units totaling 350 MW were down; temperatures reached about 114 degrees; and spot power purchases were tight, he said. The record heat in Las Vegas had pushed demand for electricity to an all-time high of 4,421 MW last Monday.

The uncertainty over power prices arose shortly after California entered a Stage 1 alert at 1:32 p.m. on Monday. It was the first time the California Independent System Operator (Cal-ISO) had declared an emergency since FERC issued its June 19 price-mitigation order, which put into play a complex formula for establishing the market clearing price (MCP) during emergency (low power reserves) situations in the West.

The Commission order required the Cal-ISO to reset (lower) the MCP, which was $91.87/MWh when the alert was declared, only if the Stage I emergency lasted for a full operating hour or more, which did not happen on Monday, said Cal-ISO spokesman Gregg Fishman. The Stage I alert last Monday quickly lapsed into a Stage II emergency, he noted, which led to the confusion over pricing under the FERC formula.

At no time on either Monday or Tuesday, which saw a Stage II alert, did the Cal-ISO reset the power prices, Fishman noted. Prices, however, did fluctuate during the emergencies based on the heat rate of the generation plants that bid into the market during given hours, he said.

"There may have been some initial confusion" over prices, Fishman conceded, but he said the Cal-ISO did its best to clear it up quickly. "We're still analyzing data" from last Monday and Tuesday to determine whether any power was withheld in California during this period. He said the Cal-ISO plans to make a filing at FERC this week to explain how it has been implementing the June 19 order.

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