California's January energy bill more than $5 billion

Feb. 22, 2001
California electricity prices declined in January from December, but were still high, compared to the $150/Mw-hr soft cap instituted in December, California Independent System Operator (ISO) market analysts reported Wednesday. January's energy and ancillary costs totaled $5.2 billion or $278/Mw-hr, down from $6.3 billion or $326/Mw-hr in December in the ISO control area, Anjali Sheffrin, director of market analysis said during the ISO board meeting.


By Kate Thomas
OGJ Online

HOUSTON, Feb. 22�California electricity prices declined in January from December, but were still high, compared to the $150/Mw-hr soft cap instituted in December, California Independent System Operator (ISO) market analysts reported Wednesday.

January's energy and ancillary costs totaled $5.2 billion or $278/Mw-hr, down from $6.3 billion or $326/Mw-hr in December in the ISO control area, Anjali Sheffrin, director of market analysis said during the ISO board meeting.

Natural gas prices were down but also remained high compared to historical averages and above average generation outages persisted throughout the period, according to Sheffrin. Prices through mid-January leveled off to $10-$12/MMbtu, but soared above $30/MMbtu in February at the southern California border due to the prospect of more stringent balancing requirements on Southern California Edison Co.'s system.

He said out-of-market calls for power remained high due to general system shortages and bilateral real time purchases by the California Department of Water Resources (DWR) being classified as out-of-market. The average cost in January amounted to $340/Mw-hr and total cost for out-of-market power was $395 million.

While gas prices are high, actual electricity prices have risen in excess of gas prices, Sheffrin said an analysis shows.

To mitigate market power, the ISO has made a number of proposals to the Federal Energy Regulatory Commission (FERC) in preparation for FERC's plan due Mar. 1. The main elements of the ISO approach include:

� Forward contracting threshold for suppliers to avoid strict market power mitigation.

� Availability requirements on suppliers to mitigate exercise of market power through physical withholding along with available capacity reserve contracting on load-serving entities, including utilities, to identify adequate generation to meet seasonal load needs.

� Local market power mitigation.

� Resource specific bid caps in the spot market.

Under such a scheme, suppliers satisfying the forward contract threshold option will make higher profits, according to the proposal, and suppliers electing not to comply with the forward contract requirements would be paid as-bid.

Sheffrin says the main elements of the plan are to support the state's efforts to negotiate long-term power contracts. By imposing bid caps on the spot market and reducing profit opportunities, suppliers should be more willing to enter into long-term energy contracts at a "more just and reasonable price."

The state's long-term energy purchases will be used by load-serving entities to meet available capacity margin requirements, but will be phased in during 2001 and 2002 in order not to harm the state's negotiating position.

Congestion on Path 15, the North-South transmission corridor has become nearly impossible for the ISO to manage in the forward markets, now that the California Power Exchange (PX) is out of business, according to Sheffrin. He said the market analysis group and operations are working with the DWR to schedule energy it acquires for the utilities in the day-ahead rather than real-time market, and to the extent possible, counter schedule it to reduce Path 15 congestion.