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CAL PX Study Finds No Market Gaming

CAL PX Study Finds No Market Gaming

The state-chartered, nonprofit California wholesale spot power market (Cal-PX) concluded this week that the state's market is flawed but has not been gamed. The power exchange intends to make its results public Nov. 1 in a filing to the Federal Energy Regulatory Commission, a Cal-PX spokesperson said Tuesday.

In addition, the market through which California's major investor-owned utilities are mandated to buy and sell most of their electricity also will file with FERC its arguments against merging PX operations with its state-chartered cousin, the California Independent System Operator (Cal-ISO), the state's transmission grid operator.

Some of the state's most blatant flaws, the Cal-PX report concludes, related to sellers of power being encouraged to hold back supplies for sale at the last-minute to the Cal-ISO's real-time emergency market purchases that are made to ensure grid reliability in peak-demand times. As the ISO had said in earlier FERC filings, the Cal-PX report recommended selling more supplies in the forward markets, including the Cal-PX day-ahead market.

Dynegy Senior Vice President Lynn Lednicky said his firm is "very supportive" of efforts to move the California sales out of what he and fellow generators think is too much reliance on the spot market, which he characterized as including the Cal-PX.

"One of California's biggest problems right now is that it is purchasing the majority of its power in what is essentially the spot market," Lednicky said. "We would make the distinction that the ISO and PX don't in that we don't consider the PX day-ahead and day-of markets as forward markets; those are spot markets. When we talk about forward markets, we are talking about buying the balance of supplies for the next quarter or the next year.

"We think it is very important that California move quickly to purchase the majority of its power out of forward markets and not the spot market."

The Cal-PX draft report indicates that volumes in the day-of market have increased by 387% compared to 1999 as the increasing shortage of supplies in California day-ahead market in peak-demand situations has encouraged power sellers to bid more into the Cal-ISO real-time market.

"We concluded that there are structural problems with the market that can and should be changed, but we didn't find anyone doing anything actually illegal in the market (this past summer)," said a source at Cal-PX.

Average prices in California's wholesale market have stayed above $100/MWh throughout October, during which peak-demand statewide was about 60% of the summer peaks. The Cal-PX source conceded the prices have stayed "inordinately" high.

"There are a couple of potential ways for the state to inhibit electrons being sold out of state only to be sold back into the mix at much higher prices," said the Cal-PX source.

Spokespeople for several of the merchant generators, including Duke Energy, Reliant and Dynegy, indicated they were expecting to make some filing to FERC to reiterate that they don't believe there have been any illegal or market abusive behavior by the generators.

Richard Nemec, Los Angeles

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