Marketers, Generators Seek Rehearing of Expanded Price Controls

FERC's mid-June order expanding price-mitigation around the clock and to the entire western region came under sharp attack from power marketers and generators last week, with some saying it could lead to an "inevitable exodus of marketers" and a "new wave" generation project cancellations in the West.

"There are no findings to support the extension of price caps to all hours or to support the extension of the price-mitigation plan to the western region as a whole," Mirant (formerly Southern Companies) told FERC in its rehearing request. "The Commission's increasing level of interference in the market is preventing consumers and investors from seeing appropriate price signals and delaying needed improvements in California's market structure."

Specifically, the Mirant companies called on FERC to eliminate the use of price caps during non-emergency periods; reinstate the use of a daily gas price index; allow marketers and other sellers to justify prices above the market clearing price based on their costs for purchasing power; and to eliminate the use of price controls throughout the entire western interconnection [EL00-96-039].

The June 19 order "is misguided in several respects and is particularly harsh to marketers" because it bars them from selling energy at prices above the generator market clearing price, claimed Enron Power Marketing Inc., Coral Power L.L.C. and Exelon Corp. The Commission took this action to quell concerns about "megawatt-laundering," whereby generators allegedly were exporting power to out-of-state marketers, who then sold it back into the Cal-ISO at prices exceeding the market clearing level.

FERC provided "but a scant explanation for this sweeping limitation" on power marketers, the three companies said. They predicted this would result in an "inevitable exodus of marketers" that eventually "will damage reliability, cause blackouts and will lead to a liquidity vacuum in spot markets" throughout the Western Systems Coordinating Council (WSCC). In fact, the order already has caused "uncertainty and confusion in the market" and is "degrading reliability."

The June order "takes a bad idea --- price controls --- and extends all hours and to the entire WSCC region," noted Reliant Energy. These "broader price controls will only exacerbate the pernicious effects of the limited price controls" that were adopted by FERC last April.

The extended price controls already have resulted in blackouts in neighboring states to California, "as suppliers react to the price uncertainty and the premiums for sales into California," Reliant noted. In addition, it has found that about 700 MWs of existing or planned generation in the WSCC "has been removed from service, cancelled or delayed in recent week," the marketer told the Commission.

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