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Congress Urged to Focus on Electric Market-Power Issue

Congress Urged to Focus on Electric Market-Power Issue

Given the recent price spikes in the Midwest and California electricity markets, a California power agency has called on Congress to take the necessary steps to rein in unleashed market power when it takes up restructuring legislation next year.

"In early July, the California independent system operator (Cal-ISO) was forced to accept bids for certain ancillary services needed for system reliability that were more than 3,500% above the normal cost of providing those services," the Northern California Power Agency (NCPA) said in a July 28th letter to Rep. Thomas Bliley (R-VA), chairman of the House Commerce Committee.

Documents filed at FERC contend the "dramatic" price spikes were the result of excessive market power, the agency reported. Only four companies - those that recently bought divested generating assets from California's private utilities - have the authority to charge market rates for these ancillary services, it said.

"It appears that excessive market concentration, insufficient market participants, and a flawed market analysis are responsible for this non-functioning market. Further complicating the problem, the state's publicly owned electric utilities have, for the most part, been purposefully excluded from participating in the ISO's ancillary services market," said NCPA, which provides generation, transmission and distribution services on behalf of 15 cities in the state.

A "Band-Aid" has been applied to prevent more price spikes: FERC has imposed a price cap on these ancillary services and requested a report by the Cal-ISO and Power Exchange on the market structure, it noted. But NCPA questions whether this will be sufficient.

"Behavioral remedies, such as price caps, reduce the potential for abuse, but they do not solve the underlying problem. Southern California Energy and San Diego Gas &amp Electric complained to FERC that the price cap merely reduces the severity of exorbitant pricing. Structural solutions - facilitating true competitive markets - is both more effective and ultimately less intrusive."

Susan Parker

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