Long-Term Price Mitigation Proposed

In an effort to halt the exercise of significant market power in the California bulk power markets, FERC staff has proposed that the state-run Independent Operator System (Cal-ISO) be permitted to mitigate prices on power transactions in its real-time markets during periods of reserve deficiencies, such as Stage 3 emergencies.

"These hours are those which are extremely conducive to the exercise of market power by suppliers" in the California bulk electricity market," staff said in a March 9 report Friday, which listed its recommendations for market monitoring and mitigation measures in the out-of-control power market.

During such emergency periods, all units that have signed a Participating Generator Agreement (PGA) with the Cal-ISO should be required to offer all of their capacity that is available and not scheduled to run for use in the California market, the FERC staff proposed. In return, the PGA units would be paid the marginal cost of the highest priced PGA unit called upon to run when reserves are at a critical stage, staff said.

Likewise, staff believes load-serving entities (utilities) should be required to report the price at which they will curtail their loads, as well as identify which loads will be curtailed.

It further recommended that each generating unit be required to have a "standing, confidential price based on its marginal costs" to be used by the Cal-ISO to establish the real-time market clearing price when mitigation is required, as well as an estimate of the available capacity that could be counted on from each generating unit. The Cal-ISO would have the option of choosing between demand bids or the price-mitigation levels on file when determining the market-clearing price during critical reserve situations, according to the staff report.

Staff's proposed long-term mitigation/monitoring measures are intended to replace the "soft" $150/MWh price cap that took effect on Jan. 1 on certain transactions in the Cal-ISO and Cal-PX markets. FERC expects to adopt a long-term mitigation/monitoring approach by May 1.

Staff recommends that its price mitigation approach for the California power market "sunset" in no more than one year. "We also recommend that mitigation levels be adjusted within the time period, if necessary, to help ensure new investments in infrastructure are undertaken quickly."

The FERC staff report also seeks to give the Cal-ISO greater authority over planned outage schedules for all generating plants. The ISO's existing authority is limited to approving the outage schedules for reliability must-run facilities. "The current ISO authority may need to be strengthened to achieve greater systematic control over all units (including those of the IOUs) that the ISO must dispatch," it said.

"The procedures for coordination and outage control should be coupled with reporting requirements to the Commission and expedited review when disputes arise." It added that "questionable outages should be immediately reported to the Commission." Susan Parker

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