Independent power marketers are opposed to any extension of theCalifornia Independent System Operator’s (Cal-ISO) purchase pricecap authority, saying it would give the Cal-ISO “unfettered”control over wholesale electric market prices in the state. Butinvestor-owned utility, Southern California Edison, and theCalifornia Power Exchange (Cal-PX) see an upside to the Cal-ISO’srequest.

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 theCalifornia bulk power markets, said PPL Montana LLC and PPLEnergyPlus LLC, adding that FERC should reject the “indefinitecontinuation of price caps” being proposed by the Cal-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 argue. “At a timewhen regulatory efforts to remove monopolistic practices in theelectric industry are well underway, giving the ISO the authorityit seeks to establish prices at its discretion would, in essence,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.

The Cal-PX said it supported the Cal-ISO’s request, saying theISO needs the flexibility to impose price caps in its real-timemarkets in the event they are need. However, it said it wasconcerned that any 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,saying 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, Amendment No. 31 alone will not restrain prices to justand reasonable levels, Edison said. It “will merely maintain thestatus quo, and the status quo consists of a market that is notworkably competitive and that results in prices that are unjust andunreasonable, even with the existing $250/MWh purchase price cap.”

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