California ISO rejects compensation proposal

With the power shortage continuing to plague California, wholesale power generators and marketers are concerned a full-blown electricity crisis might prompt the California Independent System Operator to curtail out-of-state exports of power without compensating the sellers. Confirming marketers worst fears, the ISO board rejected a compensation proposal Tuesday.


Ann de Rouffignac
OGJ Online

With the power shortage continuing to loom in California, wholesale power generators and marketers are concerned a full-blown electricity crisis might prompt the California Independent System Operator to curtail out-of-state exports of power without compensating the sellers.

For the third day in a row, state utilities instituted interruptible load curtailments Wednesday to avoid rolling blackouts that could prompt such a recall of exported power.

Wholesaler generators acknowledge the California ISO has the right to recall power to the state during a crisis. But they want to be fairly compensated for any out-of-pocket losses suffered in a recall, if buyers with whom they have contracts then have to turn to the spot market to buy replacement power at higher prices.

A group of independent generators proposed to the board of governors of the ISO that producers receive compensation, if power exports are ever recalled. Compared to the discussion about lowering price caps to $250 mw-hr from $500 mw-hr for wholesale power, the issue of compensation in the event electricity exports are curtailed was little publicized.

The compensation proposal was considered at Tuesday's board meeting and �unanimously� rejected, says John Stout, vice-president for asset commercialization at Houston's Reliant Energy Inc., which owns unregulated electric generating capacity in California. The ISO did not return phone calls.

But the impact of this decision will have far reaching impact on the market in California and neighboring states, Stout says.

�This adds to the concerns about locating a power plant within the state of California,� Stout says.

It also impacts the liquidity of neighboring power markets.

�The lack of compensation will have a chilling effect to offer power for sale in other trading markets,� he says. �The bottom line is it will have a negative impact on trading throughout the West.�

Complicating the picture, many observers expect the $250 price cap to increase exports to markets willing to pay higher prices, exacerbating the crisis.

�The $250 price caps have turned California into the bargain basement shopping market for energy,� Stout says. �California will become the low-cost producer of electricity creating more exports.�

Stout says other power market control areas are putting compensation plans in place. The Federal Energy Regulatory Commission ordered the New England control area to develop such a plan, Stout says.

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