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New England Utility Seeks $1,000/MWh Power Price Caps

New England Utility Seeks $1,000/MWh Power Price Caps

NSTAR, the parent company of Boston Edison, Commonwealth Electric, Cambridge Electric and Commonwealth Gas, has requested that the Federal Energy Regulatory Commission impose a price cap of $1,000/MWh on the New England wholesale power market to protect electricity consumers from potential surges in prices during peak periods this summer (see Docket No. EL00-83).

The NSTAR filing requests that price caps be in place from July 1, 2000 through April 2001. The filing also asks that during that period, FERC direct the New England Power Pool (NEPOOL) and the New England Independent System Operator (ISO-NE) to develop operating procedures that will allow the ISO to determine whether the energy market is workably competitive.

"While we continue to encourage competition, we recognize the importance of temporary controls to protect consumers," said NSTAR CEO Thomas J. May. "Even the U.S. stock market, generally regarded as the most efficient market in the world, has 'circuit breakers' to halt trading if irrational behavior is detected."

NSTAR Vice President of Energy Supply Paul Vaitkus noted that New England is at the end of the pipeline for all fuels and has historically had some of the highest energy prices in the nation. It also is the only region in the country with a competitive energy market, operated by an ISO, that does not have price limits. California, Pennsylvania, New Jersey and Maryland already have price caps in place and on June 6th, the New York State ISO approved a price cap of a $1,000/MWh.

"On May 8, 2000, the price of wholesale electricity in New England soared to $6,000/MWh, about 200 times the normal price," Vaitkus noted. "These irrational prices are a clear sign of market instability. Left unabated, this behavior will stunt the growth of retail competition and will expose consumers to higher energy prices. If the competitive market is to develop properly and live up to the promise of reduced energy costs for customers, temporary controls such as the price caps we are seeking, must be implemented."

In its complaint, NSTAR told the Commission the May 8 price spike, "coupled with official predictions of price spikes of even greater magnitude during the summer, has caused a 100% price increase in the forward bilateral markets. That increase is, in turn, choking off the nascent retail competition in New England.

"Measures to address known market flaws have not been implemented and anomalous market conduct does not appear to be understood. These factors, together with structural market flaws, point to the fact that the energy market in New England is not workably competitive during periods of capacity constraints."

NSTAR has requested that NEPOOL be directed to implement temporary price caps by July 1, 2000 and redesign the energy market by April 1, 2001 so the price caps can be lifted.

Rocco Canonica

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