Portland General calls for changes in price cap calculation

Portland General Electric, Portland, Ore., Tuesday called for changes to the way the Federal Energy Regulatory Commission calculates the price cap in effect in the western electricity markets. FERC issued orders June 19 and July 25 in an effort to stabilize the western energy market.


By the OGJ Online Staff

HOUSTON, Aug. 7 -- Portland General Electric, Portland, Ore., Tuesday called for changes to the way the Federal Energy Regulatory Commission calculates the price cap in effect in the western electricity markets.

FERC issued orders June 19 and July 25 in an effort to stabilize the western energy market. A coalition, including Portland General, a unit of Houston's Enron Corp.; Sierra Pacific Resources, Reno, Nev.; and Puget Sound Energy, a unit of Puget Energy Inc., Bellevue, Wash., said if left unchanged the FERC order could create higher prices for some utilities' retail customers and could result in power supply shortages in many areas of the West.

Through the price mitigation order, wholesale prices are now geared to the cost of power production in California. Specifically, the cap is based on the highest-cost natural gas-fired plant in the state, whose power is needed when reserves fall below 7%, triggering a Stage 1 supply emergency.

When reserves exceed 7%, the price cap is set at 85% of the highest hourly price set during the most recent Stage 1 emergency.

The price caps set a price for power that is bought and sold daily in the West, but were not applied to longer-term power contracts.

Portland General said FERC should base a price mitigation plan on prices in all affected states, not just California. While the utility said it doesn't support price caps in general, at the very least, the company said FERC should set the cap on the highest cost generator, and highest cost fuel, in the 11 western states.

Another option would be to establish a proxy of $150/Mw-hr, the company said. Portland General also advocated allowing all market sellers, whether generators, utilities, or marketers, to justify their bids based on their costs. The Oregon utility said FERC's one-price-fits-all formula doesn't account for costs due to certain circumstances, except for generators.

It also recommended FERC exempt demand reduction programs that compensate businesses for reducing usage during times of high prices from the price cap. Out-of-state sellers should receive transmission costs and losses on top of the capped price, Portland General said. Whenever an entity transmits power over a long distance, a certain percentage of power is lost to the transmission process.

Additionally, as power crosses the jurisdictions of other utilities, there is a fee, or toll, charged for the usage of those lines. FERC's existing methodology does not account for these fees and losses, Portland General said.

"We believe FERC has changed the rules in the middle of the game," said Pamela Lesh, Portland General vice-president.

The western group also criticized FERC for first encouraging energy providers to move away from reliance on the short-term wholesale electric market and then, through the price control mechanism, punishing those utilities that followed the directives.

"The utilities that did the responsible thing in securing appropriate supplies for their core customers, consistent with good public policy and FERC's directives, now face the prospect of being forced to sell power to other utilities at a loss," said Tim Hogan, Puget Sound Energy's vice-president of external affairs. "This will result in consumers of one utility paying the price for the federal bailout of another state, which is completely unacceptable."

Sierra Pacific complained western utilities are being required to provide power to California at less than full cost under the price controls, leaving customers in the other western states to finance the California relief effort.

Californians can obtain power at the last minute at an artificially low price while states that have had the foresight to purchase more secure, longer-term power are left with higher bills, said CEO Walt Higgins.

He said price caps harm reliability because other utilities and independent power producers are less likely to risk selling power at the last minute at the federally mandated low price. The inability to secure spot power as usual was a major factor in the brief power interruption affecting 10,000 customers last month in Las Vegas, he said.

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