FERC voted Wednesday to continue the must-offer requirement and westwide power price cap for generators starting Oct. 1 at the $250/MWh level, with some price mitigation between $97.87 (the current cap) and the $250 level. The Commission also told the California Independent System Operator to speed up creation of a day-ahead and ancillary services markets to Jan. 1, 2003, and that FERC personnel would be installed in the Cal-ISO operations center.

In a separate action the Commission ordered reformation of the Cal-ISO’s governance board, saying the current board “is not capable of operating transmission facilities on a non-discriminatory basis,” and it “continues to be in non-compliance with certain past Commission orders.” A FERC staff member said that rather than helping, the governance board has hindered efforts to redesign the state’s energy markets.

The commissioners said they regretted the need to continue to cap the western market, but were encouraged that with the completion of the revamping of the Cal-ISO market design, the market could eventually be directed by competitive forces. Commissioner Nora Brownell said she hoped to see the western market “get to true competition as soon as possible.”

Chairman Pat Wood said he was “reluctant to continue to apply mitigation,” but there are not yet rules in place to balance the market. “I don’t think we’re out of the woods yet. We have a realistic appreciation of the facts and our responsibilities.” He added that infrastructure issues were “outside our realm and the state’s responsibility.”

Wood also pointed out the order “informs ISO we will be having FERC people in the ISO offices going forward to oversee the implementation of the short-term and the long-term plan, to be as helpful as we can, but also to keep an eye on things, making sure they are moving forward as we expect them to.” There is no expiration date on the order. The commissioners said they can continue to review the situation as long-term changes to the Cal-ISO market design are implemented.

Anticipating complaints from the West on the price cap that is higher than the one set under the current formula, the commissioners pointed out that the cap for the New York ISO is $1,000/MWh.

FERC set an automatic mitigation procedure (AMP), similar to one in the New York ISO that can be used to mitigate prices between the $91.87/MWh level and the $250/MWh hard cap. Other portions of the extensive FERC order based on the Cal-ISO’s proposed new market design included:

The new scheme announced Wednesday will replace the price mitigation regime set by FERC for California in April 2001 and extended westwide in June 2001, that expires Sept. 30. That plan called for a mitigation formula to set a flexible market cap. FERC over-rode the plan last week, citing system reliability concerns and setting a firm cap at $91.87/ MWh through Sept. 30, after the Cal-ISO dropped the price cap from $91.87 to the $55 level in the midst of a heat wave.

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