California utilities seek lower price cap, cost-of-service rates

Southern California Edison Co. and Pacific Gas & Electric Co., along with the Utility Reform Network, late Monday filed a petition asking federal regulators to impose a $100/Mw-hr price cap on wholesale electricity prices in markets run by the California Independent System Operator and the California Power Exchange. The petitioners also asked FERC to consider imposing cost-of-service pricing. Independent generators have opposed such a measure.


Southern California Edison Co. (SCE), a unit of Edison International, and Pacific Gas & Electric Co. (PG&E), a unit of PG&E Corp., along with the Utility Reform Network, late Monday filed a petition asking federal regulators to impose a $100/Mw-hr price cap on wholesale electricity prices in markets run by the California Independent System Operator and the California Power Exchange.

A $250/Mw-hr cap currently is in effect only in the California ISO market. The petitioners also asked FERC to require sellers of electricity�other than "must-take'' units�to submit cost-of-service information to the commission within 30 days. The companies say FERC could use this information to replace the $100/Mw-hr cap with market power mitigation measures tailored to address problems identified in the hearing process.

The petitioners said the measures could include the temporary imposition of cost-of-service pricing; contracts through which generators would commit a percentage of their capacity to the ISO at cost-based rates; unit-specific bid caps; or market-wide caps that vary based on the operating cost of the unit expected to be on the margin at different load levels.

Jennifer Pierce, a spokesperson for Duke Energy North America (DENA), a unit of Duke Energy Corp., said continuing to "ratchet down" the price cap will not provide incentives to add badly needed generation in the California market and could encourage independent power producers to locate new plants outside the state where there are no price caps. That will mean the California ISO will have to buy power that is not subject to price caps, she said because of generation shortages in the state.

DENA Vice-Pres.Brent Bailey said last week Duke is opposed to pure cost of service rates. Going down that road opens up a whole host of issues the industry is trying to get away from, including avoiding the necessity of long, protracted rate cases before FERC, which Bailey said would be the outcome if cost-bases rates are put in place.

In their petition, SCE and PG&E said they asked FERC to make an immediate finding that California's electricity market is not workably competitive and that resulting prices are unjust and unreasonable.

"Even though the peak demands of the summer are behind us, electricity prices in the wholesale market remain unreasonably high," said John Fielder, SCE senior vice-president for regulatory policy and affairs. He said, for example, on Sept. 24, prices reached $150/Mw-hr even though demand was about two-thirds that seen during a peak summer day.

The companies said the filing demonstrates $100/Mw-hr is sufficient to cover costs for most plants, but also allowed generators and energy traders to seek a higher rate from FERC. This higher price would be paid only to the individual seller on a unit-specific basis; it would not set the market clearing price, they said.

In its most recent assessment, the California PX said electricity prices are likely to stay high thanks to rising natural gas prices and delayed power plant upkeep. With a warmer than normal fall forecast for southern California and Arizona and as much as 4,500-5,000 Mw down for maintenance, north to south congestion is already showing up during off peak hours on Path 15, the report says.

"Therefore, a return to average PX prices in what might have been considered 'normal' ranges prior to May 2000 appears improbable any time soon in either northern or southern California," the California PX said.

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