As an interim measure, the Cal ISO board last week approved (ona 13-10 vote) a load differentiated price cap that was promoted bya consumer advocate representative on the badly splinteredstakeholder 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 notmake 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-ISOboard, Lynne Church, president of the Electric Power SupplyAssociation, blasted the move, saying without findings of specificmarket abuse, regulators have the “obligation to let establishedfree markets bring about true, long-lasting solutions to thestate’s power supply shortages.”
Church said reliability ultimately could be hurt if what shecalled “meddling and fix-of-the-week pandering” are allowed tocontinue. “In fact, Cal-ISO management recommended against thisaction because of reliability implications.”
The complicated new mechanism uses natural gas futures contractprices and various generating plant heat rates to set price capsfor varying peak-demand electric forecasts. Based on running thecalculations for the first 23 days of October, price caps wouldhave varied between a low of $65/MW for five days and $105/MW for13 days; the rest would have equaled $90/MW.
As proposed by the utility consumer group TURN’s senior attorneyMike Florio and adopted by the board, when the Cal-ISO forecastsdaily peaks above 40,000 MW, the $250/MW cap will be effective; forlesser peak forecasts, the cap varies in 5,000-MW increments, soforecast 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 thatthe board voted to drop the price cap (on emergency ancillaryservices that the Cal-ISO must buy in peak-demand situations) from$250 to $100,” said Cal-ISO Sacramento-based spokesperson PatrickDorinson.
Price caps will be determined before the beginning of each monthby applying a formula and indexes that multiply the closing priceof Nymex Henry Hub gas futures contracts (average closing priceduring the last three days of trading) times pre-determined heatrates. Cal-ISO then rounds the price cap to the nearest $5.
Cal-ISO will post hourly caps at least 24 hours prior to thehour of delivery, according to Florio’s proposal. At the time thisitem went to press, Florio and TURN’s San Francisco office had notreturned calls for comments on the new price cap measure.
Richard Nemec, Los Angeles
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