Morgan Stanley Capital Group Inc., a power marketer, is seekingan emergency cease and desist order directing the California ISO’sgoverning board to overturn its decision reducing the power pricecap to $500/MWh and to restore the temporary $750 cap. It furtherasked FERC to stay the ISO’s price-cap authority, and to strip itentirely of that power when an existing resolution expires inOctober.

Given that the $500 price cap went into effect in California onJuly 1, Morgan Stanley called on FERC to grant emergency relief andfast track processing of its complaint [EL00-91]. At the veryleast, the Commission should convene an emergency technicalconference to review the ISO’s justifications for reducing theprice caps for real-time and ancillary services in the Californiaelectric market, Morgan Stanley said.

The ISO’s decision to lower the price cap was due to “blatantpolitical pressure and not based on any cogent analysis [of themarket], calling into question the independence of the Cal ISO,”Morgan Stanley charged. “Market participants continue to operateunder the threat that Cal ISO may again use its authority to orderfurther price-cap reductions or otherwise extend this authority,”it told FERC. The ISO board tried to reduce the price cap evenfurther to $250 in late June, but was unsuccessful.

The California ISO took these actions following the severe powershortages that have plagued the region over the last couple ofweeks, driving up prices.

In related action, Morgan Stanley also filed a complaint againstthe New York ISO for restricting access to its day-ahead andreal-time markets to power generators and load-serving entities(LSEs), while excluding power marketers.

It asked FERC to direct the NYISO to make the needed tariffchanges on an expedited basis to allow all market participantsaccess to the two markets. It further requested that the changes beimplemented by no later than July 31.

These restrictions “introduce unnecessary constraints on themarketplace, discourage trading and, in turn, significantly reducethe liquidity of the New York wholesale power marketplace,” saidMorgan Stanley.

In California, Morgan Stanley contends the lower price cap willhave its heaviest toll on power marketers, such as itself, that”have hedged and made significant investments in the market [based]on a $750/MWh price cap.” The financial benefactors of the CalISO’s move will be local utilities and other entities that failedto “hedge responsibly” in the marketplace. Not surprisingly, theselatter parties — the purchasers of electricity — are the onesthat advocated the lower price cap, creating what “can reasonablybe called a “rigged market” in the state, according to MorganStanley.

Electric customers also will pay the price, even though theISO’s board is under the “mistaken impression” that its action willhelp them. Morgan Stanley noted that investors make decisions aboutwhere to invest based on the long-term predictability in a region’sregulatory regime. “When predictability does not exist, investmentcapital, such as that provided by [Morgan Stanley], will quicklymove on to invest in other regions or markets where more certaintyexists. This reaction is increasingly true given the acute need forinvestment in the development of electrical generation and themarketing of power across the nation and worldwide.”

The ISO board’s “hastily considered” decision to lower powerprice caps “has had an immediate chilling effect on future capitalinvestment” in the “developing, but already complex, competitiveCalifornia power market,” Morgan Stanley said.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.