California ISO cuts price cap to $250

The California Independent System Operator Tuesday cut its price cap to $250/Mw-hr from $500/Mw-hr for wholesale power buyers amid warnings California was treading dangerously close to more involuntary rolling black outs. In a related action, San Diego Gas & Electric said it will ask the Federal Energy Regulatory Commission to review the design and structure of the California ISO which SDG&E says is fundamentally flawed.

br>Ann de Rouffignac
OGJ Online

The California Independent System Operator Tuesday cut its price cap to $250/Mw-hr from $500/Mw-hr for wholesale power buyers amid warnings California was treading dangerously close to more involuntary rolling black outs.

The vote was 15 in favor of the caps to 6 opposed and 2 abstentions. The ISO had narrowly voted down a similar proposal July 6.

The drive to lower the price cap from $500 was stimulated by complaints that consumers in the territory of San Diego Gas & Electric Co., a unit of Sempra Energy, were having to pay too much for electricity. SDG&E favored the action.

In a related action, SDG&E said it will ask the Federal Energy Regulatory Commission to review the design and structure of the California ISO which SDG&E says is "fundamentally flawed."

SDG&E said it will file Wednesday with FERC seeking imposition of caps on the bids of electricity sellers into wholesale electricity markets of the California ISO and California Power Exchange.

In its FERC filing, SDG&E said it will ask the federal agency to impose a $250/Mw-hr cap on the bids power generators make into the wholesale electricity markets of the California Power Exchange and California ISO. Currently, the California Power Exchange has a price cap of $2,500/Mw-hr for power sellers into the California market.

Under California's electric industry restructuring plan, SDG&E sold its San Diego fossil fuel power plants and now must purchase all electricity for its customers from the California Power Exchange and pass it along with no mark-up.

Some sources say SDG&E did not hedge its risks in the forward market as much as it was allowed by regulators on its purchases of electricity and was caught short when prices escalated. Generators who sell into the wholesale market were not surprised by the vote given the political mood in the state.

Political decision
�It�s a political decision,� says Joe Ronan, regulatory affairs executive at Calpine Corp. �They [the California ISO] needed to do something short term. But it won�t do anything for the long term.� Calpine, a large national independent power producer, is in the midst of building several power plants to sell electricity into the California grid.

Generation is running short in California compared to growing demand. Combined with the heat, the California ISO forecast electricity demand would hit a record 46,245 Mw Tuesday, breaking the previous record of 45,884 Mw set July 12 last year.

The ISO also ordered a Stage 2 emergency alert Tuesday, calling upon state utilities to implement voluntary interruptible load programs and warned worse could be forthcoming if residents did not reduce electricity consumption immediately. If reserves continue to fall, the ISO warned it could direct SDG&E and other California energy delivery companies such as Pacific Gas & Electric and Southern California Edison to initiate rotating, 2-hour service interruptions that would involve portions of their service territories.

At Calpine�s headquarters in San Jose, lights were off and the air conditioning turned up as incumbent utilities pleaded for more help to lower demand and avoid rolling blackouts.

While the temperature climbed and demand was forecast to reach record highs, there was not much relief to be had by importing power from neighboring states. Arizona was also feeling the heat.

Spokesmen for Salt River Project and for Arizona Public Service, a unit of Pinnacle West Capital Corp., admitted that little or no extra power was available for export from their systems.

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