Independent power marketers have denounced efforts by theCalifornia Independent System Operator (Cal-ISO) to extend itspurchase price cap authority, fearing it would give the Cal-ISO”unfettered” control over wholesale electric market prices in thestate. But California investor-owned utilities, Southern CaliforniaEdison and Pacific Gas and Electric, and the California PowerExchange (Cal-PX) and California Electricity Oversight Board see anupside to the Cal-ISO’s request.
At the center of the debate is Amendment No. 31 in which theCal-ISO seeks to extend indefinitely its authority to disqualifybids in the imbalance energy and ancillary service markets thatexceed specified levels. Its ability to impose the so-calledpurchase price cap, which currently is set at $250/MWh, is due toexpire Nov. 15. The Cal-ISO also asked FERC to confirm itsauthority to impose price caps for all of its markets without firstseeking Commission approval.
“The Commission should view this proposal with alarm. Itrepresents a serious set-back indicating that the [Cal-ISO] isattempting to use price caps as a permanent crutch that operates inlieu of its pursuit of a long-term structural solution” for thedysfunctional California bulk power markets, said PPL Montana LLCand PPL EnergyPlus LLC, adding that FERC should reject the”indefinite continuation of price caps” being proposed by theCal-ISO.
When the Commission first granted the Cal-ISO price-capauthority, the ISO pledged that it would propose a plan by thesummer of 2000 to eliminate the need for price caps, the PPLcompanies noted. “The ISO now chooses to ignore its commitment…”
Giving the Cal-ISO “open-ended” authority to levy price capswould be counter-competitive, the PPL companies further argue. “Ata time when regulatory efforts to remove monopolistic practices inthe electric industry are well underway, giving the ISO theauthority it seeks to establish prices at its discretion would, inessence, authorize it to monopsonize California’s markets.”
The Cal-ISO’s “blanket authority request is broader than anyauthority ever issued by the Commission and could set a dangerousprecedent,” warned Dynegy Power Marketing Inc. In a previous orderthis year, FERC left intact the Cal-ISO’s discretion to set the capat whatever level it deemed fit, believing that the Cal-ISO-runmarkets generally make up only 10%-15% of the sales in Californiamarkets, Dynegy noted. However, that rational has one “criticalflaw” – specifically, the Cal-ISO’s purchasers’ cap hashistorically acted as a de facto cap on the Cal-PX markets, whosevolume often totals 75% to 80% of the state’s electric markets, itsaid.
Duke Energy believes it is crucial for FERC to retain a sunsetdate on price caps, and to conduct periodic reviews of the need forprice caps. In fact, it said the Commission should require theCal-ISO to justify prior to next March 31 why any price caps shouldbe maintained in the California bulk power markets.
Giving the Cal-ISO’s governing board – which continues to”succumb to political pressure” from California legislators andGov. Gray Davis – sole authority to impose price caps would upsetthe California electric market even further, Merrill Lynch CapitalServices Inc. said. “Allegations of political arm-twisting andthreats to purported ‘independent’ members of the board werewidespread this summer and caused great concern about the integrityof the markets among market participants.”
The Cal-PX said it conditionally supported the Cal-ISO’srequest, saying the ISO needs the authority to impose price caps inits real-time markets in the event they are need. However, it saidit was concerned that price caps levied by the Cal-ISO “should notcreate disincentives for use of the forward markets for energy andancillary services in California.” It asked FERC to “carefullymonitor and condition any authorization” granted to Cal-ISO toprevent this from occurring.
Southern California Edison also backed the Cal-ISO’s request.The “ISO’s purchase price cap is the only thing now standingbetween California consumers and the ability of sellers to set’extremely high prices.'” It believes the Cal-ISO should continueto have the authority to disqualify artificially inflated bidsuntil the California power markets become “workably competitive.”
However, Edison conceded Amendment No. 31 isn’t a cure-all. It”will merely maintain the status quo, and the status quo consistsof a market that is not workably competitive and that results inprices that are unjust and unreasonable, even with the existing$250/MWh purchase price cap.”
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