California ISO reduces price cap to $500/Mw-hr

Over the objections of independent power producers, the California Independent System Operator voted to lower the price cap on wholesale electricity purchases to $500/Mw-hr from $750/Mw-hr until Oct. 15.


Over the objections of independent power producers, the California Independent System Operator voted Wednesday to lower the price cap on wholesale electricity purchases to $500/Mw-hr from $750/Mw-hr between July 1 and Oct. 15, 2000.

California utilities, including Southern California Edison Co., Pacific Gas & Electric Co., and San Diego Gas & Electric Co., wanted to lower the cap to $250/Mw-hr.

The board also voted to investigate the factors contributing to the lack of a competitive market and identify the changes in market rules and operations that will eliminate the need for market price caps.

The decision came after 3 days in which California could barely meet its electricity needs. Prices bumped up against the $750/Mw-hr cap several times during the current heat wave. To maintain a 5% reserve margin, the ISO has required utilities to invoke interruptible power agreements with big industrial customers.

With operating reserves for much of the western US slim due to the widespread heat and regional growth, California has not been able to rely on its traditional sources of imported power. Nevada's power requirements have risen 51% in the past decade, and plant construction has not kept up with demand.

Electricity normally imported by California from the Northwest is particularly scarce because power is needed within that region, which is also experiencing lingering hot weather.

A Dynegy Inc. spokesman says the caps are a mistake because generators can get better prices in nearby states such as Arizona or in the Northwest. The Houston firm owns interests in four generating facilities with a total of 2800 Mw.

"We certainly want to do business in California," he said, "but we hope the ISO realizes the best approach is to create a market where generators compete with each other." He says California needs to reduce regulations which stretch the time to complete a project to 3-5 years, compared to under 2 years in other parts of the country. Many plants now in the works will not begin operating for another 2 years.

The board said it recognizes the price cap may lead to difficulties meeting summer 2000 loads that could require an emergency board meeting. In the meantime, it ordered ISO management to work with government agencies and the legislature to streamline and accelerate the construction of power plants and transmission lines and to eliminate constraints on hedging opportunities by utility distribution companies.

More in Pipelines