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Cal-ISO Lowers Cap to $100, Makes Other Changes

Cal-ISO Lowers Cap to $100, Makes Other Changes

As an interim measure, the Cal ISO board last week approved (on a 13-10 vote) a load differentiated price cap that was promoted by a consumer advocate representative on the badly splintered stakeholder board. The action drew swift criticism from generators.

The so-called $100/MW cap --- lowering the current $250/MW one --- is effective Nov. 3, although the Cal-ISO management did not make a public announcement on the change. Under the new system, high-demand summer days would keep the $250/MW cap.

Citing political, election-year interference with the Cal-ISO board, Lynne Church, president of the Electric Power Supply Association, blasted the move, saying without findings of specific market abuse, regulators have the "obligation to let established free markets bring about true, long-lasting solutions to the state's power supply shortages."

Church said reliability ultimately could be hurt if what she called "meddling and fix-of-the-week pandering" are allowed to continue. "In fact, Cal-ISO management recommended against this action because of reliability implications."

The complicated new mechanism uses natural gas futures contract prices and various generating plant heat rates to set price caps for varying peak-demand electric forecasts. Based on running the calculations for the first 23 days of October, price caps would have varied between a low of $65/MW for five days and $105/MW for 13 days; the rest would have equaled $90/MW.

As proposed by the utility consumer group TURN's senior attorney Mike Florio and adopted by the board, when the Cal-ISO forecasts daily peaks above 40,000 MW, the $250/MW cap will be effective; for lesser peak forecasts, the cap varies in 5,000-MW increments, so forecast of above 35,000 MW but to 40,000 MW would drop to $165/MW, etc.

"It is very complicated, and it isn't as simple as saying that the board voted to drop the price cap (on emergency ancillary services that the Cal-ISO must buy in peak-demand situations) from $250 to $100," said Cal-ISO Sacramento-based spokesperson Patrick Dorinson.

Price caps will be determined before the beginning of each month by applying a formula and indexes that multiply the closing price of Nymex Henry Hub gas futures contracts (average closing price during the last three days of trading) times pre-determined heat rates. Cal-ISO then rounds the price cap to the nearest $5.

Cal-ISO will post hourly caps at least 24 hours prior to the hour of delivery, according to Florio's proposal. At the time this item went to press, Florio and TURN's San Francisco office had not returned calls for comments on the new price cap measure.

Richard Nemec, Los Angeles

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