As California endured another Stage Two Electrical EmergencyWednesday, San Diego Gas & Electric (SDG&E) asked FERC toimpose a $250/MWh cap on the bids that suppliers make to sell powerinto the bulk electric markets of the California Power Exchange(Cal-PX) and the California Independent System Operator (Cal-ISO).

In its filing at FERC, the San Diego utility is seeking aten-fold reduction in the Cal-PX’s existing bid cap of $2,500/MWhfor power sold into the California market. The current bid cap forpower sellers into the Cal-ISO could not be learned yesterday. Thebid cap being sought by SDG&E for the Cal-ISO is different thanthe $250/MWh price cap approved by the Cal-ISO board Tuesday, whichplaced a limit on the price at which the ISO could buy wholesalepower in the real-time ancillary and congestion markets. SDG&Ealso asked the Commission to review the design and structure of theCal-ISO, which it contends is “fundamentally flawed.”

Because it no longer has fossil-fueled power plants, the SanDiego utility said it has been forced to purchase high-pricedwholesale power for its customers from the Cal-PX, and pass throughthe charges to them. While SDG&E seems to placing most of theblame for its high prices on the Cal-PX and Cal-ISO, industrysources say the utility didn’t hedge its risks as much as it couldhave, and simply was caught short of supply when prices took off.

“California’s newly deregulated electric marketplace is notworkably competitive yet and, as a result, our customers haveunfairly borne the brunt of runaway wholesale prices,” saidSDG&E President Edwin A. Guiles. He said the Cal-ISO’s moveearlier this week to cut the price cap was a “significant positivestep toward providing economic relief for our 1.2 millioncustomers, while allowing the immature competitive marketplace inthe state to develop.”

Had the Cal-ISO taken this action earlier, however, the utilityestimated that the electric bills of its customers in San Diego andsouthern Orange County would have been more than $80 million lowerduring June and July.

“California has a chronic shortage of power generating andtransmission capacity to meet the growing energy demand in thestate,” Guiles said. “It may be two to three years before enoughpower plants come on-line to ease some of the supply shortfall. Inthe meantime, we need to protect consumers from the undisciplinedpricing behavior and structural problems in the California market.”

In a letter to California Gov. Gray Davis yesterday, FERCChairman James Hoecker said he was “concerned about the impact ofelectricity price increases on certain California customers,”adding that the Commission “has been following this summer’s eventsin California markets closely.”

Although “I cannot comment on specific proposals that may befiled with the Commission,” Hoecker said FERC would take”appropriate action” on matters within its jurisdiction. “We mustwork together to ensure that any regulatory response to currentevents does not undermine reliability of the electric system orunduly delay” competition.

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