California prepares to sue FERC over price caps

California Gov. Gray Davis is taking steps to prepare for a state lawsuit against the Federal Energy Regulatory Commission to force the commission to enact price caps on the electricity wholesale market. After the governor's face-to-face meeting with President George W. Bush failed to add anything new from the federal side to the debate over electricity prices, Davis vowed to take his case for price caps to federal court.


By the OGJ Online Staff

HOUSTON, May 30 -- California Gov. Gray Davis is taking steps to prepare for a state lawsuit against the Federal Energy Regulatory Commission to force the commission to enact price caps on the electricity wholesale market.

After the governor's face-to-face meeting with President George W. Bush Tuesday failed to add anything new from the federal side to the debate over electricity prices, Davis vowed to take his case for price caps to federal court.

California State Sen. John Burton had filed a suit against FERC in federal court and subsequently petitioned the US Court of Appeals for the Ninth Circuit to take up the case. Tuesday the appeals court denied the petition in part because the state had not exhausted remedies available at FERC.

On May 25, the California Independent System Operator (ISO) filed a request for rehearing on FERC's Apr. 26 order that established a market power mitigation and monitoring plan for the California wholesale electricity market. The filing claims FERC's Apr. 26 action was insufficient.

Tuesday, Davis said 30 days from the date of these filings is a reasonable time to wait for FERC to respond. If FERC is unresponsive, the state would file its lawsuit after that, he said.

In its filing, the ISO said FERC's Apr. 26 plan will do nothing to make prices "just and reasonable."

"There can be no dispute that the mitigation now in place in the California wholesale markets has utterly failed to stem the rampant exercise of market power, resulting in unconscionable prices, already driving Pacific Gas & Electric Co. into bankruptcy and Southern California Edison Co. to its brink, spared only by the unprecedented intervention of the state," according to the ISO's filing.

Order insufficient
The ISO claimed the order was insufficient to halt the exercise of market power because of the following:

� Market power is exercised in all hours not just when there is a deficiency of reserves. FERC's plan only applies when the level of available operating reserves falls below 7.5%.

� Market power is exercised across all markets; yet FERC's proposed mitigation would apply only to the ISO's imbalance energy market. This leaves loopholes in the ancillary services market necessary to satisfy reliability requirements and also for congestion management critical to efficient grid operation.

� The order does nothing except study the problem of so-called "megawatt laundering." (Megawatt laundering occurs when in-state generators sell power out-of-state and then that power is sold back into California at much higher prices enabling the generator to evade price controls.)

� Even the limited mitigation offered by FERC in its order is conditioned on the ISO filing a plan for a regional transmission organization (RTO) by June 1. The commission cannot condition its willingness to discharge its statutory responsibilities on actions to be taken by others, the ISO said.

"We have plans to file a response to FERC concerning the RTO," said Gregg Fishman, ISO spokesman. Fishman would not elaborate about the filing planned for June 1.

The ISO said FERC has just two options available to resolve the California power crisis. The federal agency can return to traditional cost-of-service ratemaking principles or use a simplified approach by adopting generator specific costs, plus a reasonable add-on for capacity in the range of $25/Mw-hr.

Or, the ISO said, FERC can institute a regional mitigation approach recommended by the grid operator in previous filings.

More in Home