FERC staff concluded in a report to Congress last week that the Commission’s wholesale price caps during the last half of 2001 in the western power market had little or no economic impact because prices of surplus power resold by utilities in the spot market on average were only $35/MWh compared to the cap at $92/MWh.

After the severe price spikes a year earlier, the spot market turned soft as milder weather and conservation reduced demand and left adequate supply on the market, the staff report said.

The report, which the Federal Energy Regulatory Commission was required to submit to Congress under the Energy and Water Development Appropriations Act, concludes that a wide variety of factors other than the price cap affected sales prices in the West in both the spot and non-spot markets. These factors included a downturn in the regional economy, conservation efforts and adequate supply given low demand.

In a July 19, 2001 order, the Commission modified and expanded its price mitigation plan to include the 11 states in the Western Systems Coordinating Council during all hours of the day using a price mechanism that resulted in a $92/MWh power price cap from June 20-Dec. 21. The Commission also ordered all available generation be committed to the spot market. FERC made minor changes to the order in December, including setting the western price cap to $108/MWh on Dec. 21.

For its analysis of the impact of price caps on the market, FERC staff sent data requests to eight investor-owned utilities outside California. The utilities had complained to the Commission about the potential negative impact of FERC’s California power price mitigation plan on new supply entering the market and on their existing long-term power agreements.

Data from the utilities show that less that less than 1% of the power they resold came close to the price cap. The majority was sold between $20 and $30/MWh. Although the regional supply outlook had predicted a very tight market, the opposite was true. California exited the summer without one blackout in contrast to the previous summer’s supply crisis.

The data show that only two of the eight utilities had net revenues from surplus power resales (one utility did not provide data and another had no spot resales). None of the utilities resold their power in the spot market at prices above those they paid in their forward contracts. One utility, for which spot purchases made up 33% of its power portfolio, actually lost $317 million in resales of its surplus power because of the soft spot market.

“From the data the western utilities provided, staff concludes that the price cap had little if any influence on the price levels at which the western utilities were able to resell surplus energy from their long-term contracts,” the report said. “These prices were a function of a soft spot market and fell well below the price cap.”

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