Cal-PX to Resist FERC Order, Pointing to Feb. 7 Court Date

In response to a FERC directive, the California Power Exchange (Cal-PX) board last week decided to shut down day-ahead and day-of wholesale electricity markets Jan. 31, bringing toÿa close one part of the state's initial 1996 electric industry restructuring law that created the state-chartered, nonprofit public benefits corporation to provide a wholesale spot market through which California's three major investor-owned utilities were required to buy and sell all of their wholesale power. They are no longer required to do so.

"Regrettably, Cal-PX must take this extraordinary action in response to FERC's order that directs us to immediately comply with the terms of its Dec. 15 order and implement a $150/MWh breakpoint," said Cal-PX CEO George Sladoje, who noted that this week there is an oral argument (Feb.7) set for the power exchange's emergency motion and petition with the U.S. Ninth Circuit Court of Appeals, requesting a stay and rehearing of the original FERC Dec. 15 order.

The Cal-PX will not close down entirely as yet. It will continue to perform all scheduling and settlement services for its current participants. "Forward contracts will be scheduled via approved alternative delivery mechanisms, assuring both buyers and sellers will not be inconvenienced or exposed to adverse economic impact as a result of the suspension of the day-ahead market," the exchange said in announcing the market closings.

Cal-PX continued to resist recalculating its daily price auctions up until their closing last week, pointing instead for this week's federal court hearing in a case it has brought against the FERC imposition of a $150/MWh price cap in the federal DC Court of Appeals.

"How much lower can road kill get," said Cal-PX's Pasadena, CA-based spokesperson, Jesus Arredondo, noting that the state-chartered nonprofit exchange has basically been put out of business by a combination of the state's electricity crisis and FERC's order that it end its tariffs at the end of April. With the investor-owned utilities relieved of their previous mandate to use the Cal-PX for all its wholesale electricity transactions, the volume in the Cal-PX market has slowed to a trickle, and like the utilities that it is suing for unpaid bills the exchange is out of cash.

Initially, Cal-PX filed a new tariff to reflect FERC's order for the $150/MWh so-called "breakpoint," with the state exchange abandoning its previous single-price auction, but it never implemented the new tariff, filing for a rehearing.

"We find that the PX is in violation of our order to apply an as-bid price for bids above $150/MWh, and therefore, is causing unjust and unreasonable wholesale rates in California in violation of the Federal Power Act," FERC said in its latest order.

The FERC order seems the least of the cash-strapped Cal-PX's worries this week, having announced a week earlier that it was cutting 15% of its 200-person work force and taking initial steps to go out of business. Among the various legislative remedies being discussed this month in a continuing special session of the state legislature is a measure to merge the PX with the state-chartered independent grid operator (Cal-ISO), but it does not have a bill number and is just a concept that may or may not make its way into other pieces of legislation now being debated, Arredondo said.

Otherwise, Cal-PX's only option seems to be shutting down, and among the remaining loose ends would be a combination of the uncollected bills from the utilities, which in turn are owed to the exchange's creditors and whether or not the outstanding power futures contracts will be honored as part of the proposed state bonds' securitization program. One incentive for legislators to combine the Cal-PX and Cal-ISO would be to follow through on the forward contracts.

"There is not a whole lot we can do," Arredondo said. "We're a nonprofit public benefits corporation that is revenue neutral. We have handcuffs on, and we're being told to keep swimming."

For the exchange to expand into other regional energy markets --- as it once envisioned --- would require state and federal regulatory constraints being removed, said Arredondo, noting that no one at this point is pursuing this with FERC because it would require state legislative permission to do so and it is not interested in doing so.

Indications from FERC are that "they don't want us around," Arredondo said, and in the meantime there is no cash coming in to keep the Cal-PX going.

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