If FERC this week should order price caps on wholesale sales ofelectricity into the California markets as the result of itsmonths-long probe there, Puget Sound Energy Inc. has called on theCommission to take similar action in the Pacific Northwest bulkmarkets as well.

“Generally, we do not favor price caps since they do not allow awholesale market to work competitively. But in this case, the onlything worse than a price cap is a price cap on only part of themarket,” said William A. Gaines, Puget Sound Energy’s vicepresident of energy supply.

Specifically, the Bellevue, WA, utility has asked FERC to imposeprice caps on wholesale sales of power and capacity into thePacific Northwest equal to the lowest price cap on prices forwholesale purchases in, or wholesale sales of power or capacity “toor through” markets operated by the California Independent SystemOperator (Cal-ISO) or the California Power Exchange Corp. (Cal-PX).

In a complaint filed last week, Puget Sound Energy said itbelieves such action is warranted since both California and thePacific Northwest are part of the Western Interconnection bulkelectric market. As a result, each is greatly influenced by whatgoes on in the other’s markets, it said.

“Our concern is that the Pacific Northwest is an integral partof the California market, and needs to be treated the same way theCalifornia market is treated at the wholesale level so that youdon’t create an imbalance,” said Puget Sound Energy spokesman GrantRingel. “We’re strongly recommending that FERC do the same thinghere that they do in California, if they do anything.”

The Commission in August initiated a formal investigation inCalifornia in response to a complaint filed by San Diego Gas andElectric (SDG&E) seeking a broad $250/MWh price cap on allwholesale electricity sold into the Cal-ISO and Cal-PX energymarkets. FERC at the time rejected SDG&E’s request for a salesprice cap, but left undisturbed the Cal-ISO’s decision setting a$250/MWh price cap on purchases of imbalance energy and ancillaryservices (See Daily GPI, Aug. 24,2000). Since then, several proposals to reduce the price cap onsales into the Cal-ISO and Cal-PX to as low as $100/MWh have beenfiled at the Commission.

In a related development, the Electric Power Supply Association(ESPA) yesterday blasted the Cal ISO board’s decision last Thursdayto implement a floating, load-differentiated price cap in certainspot markets administered by the ISO, calling the move an”ill-advised action” that was made in “obvious disregard” of theFERC proposals addressing the California power market that are dueto come out Wednesday.

“Price caps of the kind requested for sales to the Cal-PX andCal-ISO and those instituted by the Cal-ISO for purchases are —absent equivalent price caps on wholesale sales of energy andcapacity into the Pacific Northwest — fundamentally unfair toPacific Northwest public utilities such as [Puget Sound] and areantithetical to the development of a fair competitive wholesalepower market in the Western interconnection,” Puget Sound Energytold FERC [EL01-00].

It is “unfair and discriminatory to protect wholesale purchasersin California with a price cap and yet deny similar protection towholesale purchasers in another part of essentially the samemarket, i.e. the Pacific Northwest,” the utility said.

The effect of this “disparate treatment” is that California isable to buy Pacific Northwest power at “artificially low prices”when it needs it during the summer, while Pacific Northwestcustomers are left paying higher costs when the need is reversed inthe winter, said Puget Sound’s Gaines.

If the Commission should order any refund relief as a result ofthis complaint, Puget Sound Energy proposed that it take effect 60days after the date of filing of the complaint. A refund effectivedate before that “would harm Pacific Northwest consumers.,” theutility said.

In related action, a complaint brought by the CaliforniaMunicipal Utilities Association (CMUA) seeking a return tocost-of-service regulation in California until more transmissionand generation can be constructed drew mixed reactions from themarket.

The Sacramento Municipal Utility District (SMUD) came out insupport of the remedies proposed by the CMUA. “Without thecost-of-service protections advocated in the CMUA complaint, theconsumer will again face the likelihood of paying rates that do notreflect fair competition.in the summer of 2001 and for theforeseeable future,” it told FERC.

In contrast, PPL Montana LLC, and PPL EnergyPlus LLC urged FERCto reject it. Not only has the CMUA failed to show that the currentrates established by markets in California are “unjust,unreasonable or unduly preferential,” but it “presents no evidenceshowing that reversion to cost-based rates for generation willpromote investment in needed resources,” the two PPL companiessaid. “In fact, the past regime of cost-based regulation as well asthe uncertainty that was appurtenant to the transition fromcost-based regulation largely contributed to today’s power supplydeficits in California.” The Commission “should not abandon thisideal [of competition] for California markets.”

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