Federal regulators clarify California market rules

The Federal Energy Regulatory Commission Wednesday ruled bilateral contracts between government electricity suppliers and buyers are exempt from the wholesale price caps the commission imposed to stabilize the California power market. FERC issued a number of clarifications and modifications to its orders with respect to the electric power markets in the West but left the major orders standing.

By the OGJ Online Staff

HOUSTON, Dec. 19 -- The Federal Energy Regulatory Commission Wednesday ruled bilateral contracts between government electricity suppliers and buyers are exempt from the wholesale price caps the commission imposed to stabilize the California power market.

The ruling applies to federal and municipal utilities such as Los Angeles and to rural electric cooperatives. The order retained the price cap and potential for refunds for government entities and cooperatives that sell through the California Independent System Operator.

FERC issued a number of clarifications and modifications to its orders with respect to the electric power markets in the West but left the major orders standing.

The commission also urged the California ISO to create a new congestion management plan and a day-ahead market. These functions were formerly performed by the now-defunct California Power Exchange. But FERC took no specific action on ISO governance issues.

In a clarification, FERC said generators subject to the must-run requirement should be able to recover their costs for complying with the ISO's instructions to keep their units at minimum load status and directed the ISO to pay these costs, regardless of whether the grid operator buys the power or not. Some generators have complained the ISO has not paid them for current deliveries.

The order eliminated an underscheduling penalty established in the Dec. 15, 2000, order and said units outside California can set the mitigated market clearing price. FERC also changed the formula that sets the price. It said the market clearing price is to be set by the proxy price of the last unit dispatched, not the lower of the proxy price or the actual bid of the marginal unit.

In a related but separate order, the commission also changed the method for setting price caps in the west-wide market in the winter. Northwest power producers complained bitterly they are unfairly penalized because demand in the region peaks in winter, compared to California, which peaks in summer.

FERC issued a number of orders this year to bring stability to the California market after the staff found the market structure and rules for the wholesale market were "seriously flawed."

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