California PX's Sladoje criticizes FERC proposal

Federal Energy Regulatory Commission proposals to eliminate a requirement that electricity be bought and sold on the California Power Exchange could 'inadvertently drive business out of the effectively functioning day-ahead and day-of markets,' George Sladoje, president and CEO of the California Power Exchange, warned in written remarks scheduled to be presented at a FERC hearing Thursday.


Ann de Rouffignac
OGJ Online

Federal Energy Regulatory Commission proposals to eliminate a requirement that electricity be bought and sold on the California Power Exchange could "inadvertently drive business out of the effectively functioning day-ahead and day-of markets," George Sladoje, president and CEO of the California Power Exchange, warned in written remarks scheduled to be presented at a FERC hearing Thursday.

Public comments regarding a FERC proposed Nov. 1 order to reform the California bulk electric power markets ranged from conciliatory to combative at today's day long hearings arranged in a series of panels.

During the initial 2 years of market development, Sladoje argued, "when adequate supply was present, attractive electricity prices were achieved in California under this market design."

Sladoje reminded FERC that the California PX also offers 20 forward trading products on a pay-as-bid format as well as its day ahead and day-of-markets with uniform price auctions. He emphasized long-term forward trading opportunities through an exchange-based platform is advantageous compared to a series of individual bilateral trades.

He noted that moving to a system of individual bilateral trades obscures price transparency that gives signals for generation expansion and load responsiveness and also provides a tool that regulators can use to assess market behavior. An exchange platform offers a competitive market that facilitates trading liquidity among buyers and sellers, he said.

If the mandatory buy-sell requirement is eliminated Sladoje asked the FERC to apply any regulation, refund measures, or price mitigation evenly across all market transactions and market participants including the other exchanges, dot coms, and bilateral traders. If the rules are not evenly and fairly applied to all venues then the door is opened to gaming, skewing market incentives, and impairing market efficiency, he said.

Moreover, Sladjode said, restrictions on using the existing forward markets should be lifted.

Generator support
But most participants, particularly independent power producers, embraced the FERC proposal to eliminate a requirement that all load serving entities buy and sell power on the California PX. They also mostly agreed with a FERC proposal to replace the stakeholder boards of the California PX and the California Independent System Operator (ISO) with independent boards to remove some of the political influence.

They also agreed with FERC that relying on near term and spot markets contributed to the volatility and high power prices in California.

Terry Winter, president and CEO of the California ISO, said he welcomed FERC's emphasis on balancing supply portfolios between longer and short-term commitments. Going beyond its chartered duties, this summer the ISO scrambled to find and supply the state's power needs on an almost daily basis.

Winter said he is relieved the ISO will no longer feel a since of obligation to get the power supply necessary to serve predictable load. If ISO power purchases are minimized to fine-tuning the balance between supply and demand, then the organization can get back to its core responsibility of insuring reliability, he said.

But Winter also beat the drum for more electric generating capacity, warning that if it is not built quickly, next summer could be even worse than this past one. It's unclear if FERC order gives the proper incentives, he said.

�Unless we are exceedingly lucky next summer, the challenges to reliability will be even more formidable than it was this past summer,� he said.

Independent power producers warned a FERC-proposed rate cap could deter construction of sorely needed new peaking power in the state. They complained that subjecting transactions above $150/Mw-hr to federal review and a potential refund would add even more uncertainty and drive generation out of the California market.

Lynn Lednicky, senior vice-president of Dynegy Power Corp., put it bluntly.

�The new price cap will not achieve this goal. Continue with this cap and it will not encourage new generation,� Lednicky said

But the state's utilities argued the proposed rate cap is too high and that retroactive refunds should still be pursued or other �equitable solutions� to the otherwise high retail prices that customers paid last summer.

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