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Cal-ISO Asks FERC To Impose $100 Caps

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 authorization.

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 Cal-PX)"

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 significantly changed.)

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 mitigation measures."

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 market.

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

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