California ISO wants lower price cap, late trade penalty

With a number of exceptions, the California Independent System Operator Friday asked the Federal Energy Regulatory Commission to institute a $100/Mw-hr price cap on electricity in all markets. With up to 20-30% of total consumption being bought and sold in the ISO�s real-time market, which was designed to handle only 5% of the electricity traded in wholesale markets. the ISO wants FERC to impose real-time trading charges.


With a number of exceptions, the California Independent System Operator (ISO) Friday asked the Federal Energy Regulatory Commission (FERC) to institute a $100/Mw-hr price cap on electricity in all markets.

Under the ISO proposal, the existing $250/Mw-hr price cap would serve as the absolute price ceiling for suppliers exempt from the $100 payment cap.

The $250 price cap would apply to electricity generators that can prove they will lose money if capped at $100, generators that contract 70% of their supply to serve California customers, renewable generation, generation facilities less than of 50 Mw, and new power plants.

"We cannot simply apply a short-term patch for market power, without also addressing the underlying problems causing sky-high prices," California ISO CEO Terry Winter said at a press conference. "Consumers have little control over how they can respond to high prices.

"There are traffic jams on the transmission systems that keep us from moving electricity efficiently around the state, not to mention that fact there are not enough megawatts to meet the needs of consumers. And, the lack of forward contracting and scheduling means the California ISO is making up for huge shortfalls 10 minutes before the power is consumed."

Winter said inadequate forward contracting adds to an operational problem facing the ISO. Up to 20-30% of total consumption is frequently bought and sold in the ISO�s real-time market, which was designed to handle only 5% of the electricity traded in wholesale markets. Winter said the problem of underscheduling is also addressed in the ISO�s filing by a real-time trading charge.

Along with providing the incentive for generators to sign formal contracts, Winter said the California ISO is also recommending requiring buyers to contract for 85% of their customer requirements for power in advance of when its needed.

"Because of the visibility of the ISO�s markets�the fact we are so public�and as a result of the distortion of the intended market design, the ISO has been called upon to take on responsibilities it was never intended to handle,� said Winter. �This proposal would take the ISO back to its original mission of operating the markets of last resort, allowing ISO operators to focus on maintaining reliability of the power grid.�

Winter said the plan is intended as a starting point for discussion and is not etched in stone. He said it is necessary to protect consumers from high bills, while stimulating new investment in power plants. The California ISO is chartered by the state to manage the flow of electricity along the long-distance, high-voltage power lines that make up the bulk of California�s transmission system.

The ISO assumed the responsibility in March 1998 when California opened its energy markets to competition and the state�s investor-owned utilities turned their private transmission power lines over to the California ISO to manage.

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