FERC uncaps California power prices

Political controversy flared anew over the California Independent System Operator's handling of the state's electricity crisis, with Gov. Gray Davis threatening to dismantle the existing ISO after the grid operator won federal regulatory permission to lift a cap on wholesale electricity prices Friday. The ISO operated under a Stage 1 alert at mid-day Monday, signifying reserves were below 7%, after calling Stage 2 emergencies Saturday and Sunday, indicating reserves were below 5%.

Dec 11th, 2000


Political controversy flared anew over the California Independent System Operator's handling of the state's electricity crisis, with Gov. Gray Davis threatening to dismantle the existing ISO after the grid operator won federal regulatory permission to lift a cap on wholesale electricity prices Friday.

The ISO operated under a Stage 1 alert at mid-day Monday, signifying reserves were below 7%, after calling Stage 2 emergencies Saturday and Sunday, indicating reserves were below 5%. Monday, ISO officials called for supplemental bids of 3,000 Mw and forecast a peak demand of 33,910 Mw. About 8,500 Mw is still off line in the state, down from 11,000 Mw last week, the ISO said, but electricity supply continues to be tight because of limited imports from the Northwest.

Responding to an emergency ISO filing, the Federal Energy Regulator Commission (FERC) Friday lifted the $250 Mw-hr cap, subject to oversight and other provisions. The ISO said the change creates incentives to sell power into the state market and allows it to compete in a very tight market through the western US. The state barely avoided rolling blackouts Thursday.

Generators have forced the ISO to negotiate prices or failed to respond to dispatch instructions, "with no apparent reason other than their dissatisfaction with the price they would receive under the ISO tariff. Such disregard of dispatch instructions presents a grave threat to the ability of the ISO to ensure the reliability of the ISO-controlled grid," the ISO says in its filing.

The insufficiency of in-state generation and refusal of generators to operate has also forced the ISO to increase reliance on out-of-state generators that are not subject to the price cap. In its filing with FERC, the ISO complained for 4 days last week it was necessary to call upon more than 250,000 Mw-hr out-of-market energy.

During that same period, electricity costs in the real-time market escalated to $81 million Thursday from $36 million Tuesday, compared to an average of $4 million for the first 4 days of December, the ISO said in a statement, explaining why it sought price cap relief from FERC.

Energy prices exceeding $250 Mw-hr will no longer be automatically rejected by the ISO's computerized scheduling system, but are being evaluated in price merit order. Bids above that amount will be allowed but will not set the clearing price paid all settling parties, as does the current purchase price.

Under a new soft-cap system for imbalance energy, generators can submit bids for more than $250 Mw-hr, but bidders will be required to report their bids to FERC weekly and provide certain cost information.

In addition to the action on the price cap, FERC also authorized the grid operator to penalize participating generators that refuse to operate in response to an ISO request in an emergency. They will be fined an amount equal to twice the highest price the ISO paid for energy for each hour in which the participating generator failed to respond.

Under the FERC order, the grid operator's cost of obtaining energy through bids above the $250 cap or through out-of-market dispatches will be assigned to the investor-owned utilities who depend too much on spot purchases.

In a statement, Davis called the FERC ruling an "outrageous assault" by a "federal agency answerable to no one" and asked FERC to rescind the ruling immediately. He also called for a congressional investigation. Gray and others have previously asked FERC to extend the price cap to the entire western US electricity market.

Gray said the ISO acted without notifying any state official and has "misled" both FERC and his staff, which had been working closely with the agencies to keep the lights on in California. He said he will "work with the legislature to "dismantle the current ISO and reconstitute in a way that will be responsive to Californians."

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