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News Digest

Fortnightly Magazine - November 15 2000

California ISO of billing all scheduling coordinators (SCs) equally through its neutrality adjustment clause (NAC) to reimburse the ISO for costs it incurs for conducting "out-of-market" (OOM) redispatch to correct system imbalances that occur when SCs "game" the market by underestimating the load they likely will need to serve.

The cities say the ISO charges discriminate against innocent parties. "It forces SCs that have taken responsibility for submitting schedules adequate to serve their loads to subsidize other SCs."

Meanwhile, the ISO defended its rate making practice as consistent with FERC rulings allowing systemwide charges for services that benefit the entire grid. It added that it was working to fix the problem. In fact, at its Oct. 4 meeting, the ISO Board of Governors had told ISO management to allow costs to SCs in proportion to deviations from schedules, but at that time the Board had actually raised the NAC price cap from 9.5 cents per megawatt-hour to 35 cents per megawatt-hour.

The ISO incurs costs when it cannot call up enough real-time supplemental energy from bids committed to supply ancillary services and thus must buy energy through OOM dispatch calls (sometimes at very high prices) to ensure gridwide reliability. The cities alleged that underscheduling and OOM redispatch calls have only increased since the price caps imposed by the ISO real-time energy markets have discouraged bids for replacement reserve capacity.

By contrast, Southern California Edison calls the Anaheim complaint "mistaken," and believes the problem stems more from generating plants holding their output off the market in an attempt to collect higher, uncapped OOM prices. As Edison explained, "suppliers are holding supplies back from the day-ahead market and the OOM payment mechanism provides them with an incentive to do so." It asked the FERC to consolidate the Anaheim complaint and look for a comprehensive solution within its broader investigation of wholesale power market. .


Power Markets

California Cash Crisis. Citing rising power costs and cash flow shortfalls of "astounding" dimensions, Southern California Edison joined with Pacific Gas & Electric to ask the FERC as an emergency measure to force power generators to disclose costs and impose price caps of $100 per megawatt-hour in markets for energy, ancillary services, and out-of-market (OOM) dispatch calls in day-ahead, hour-ahead, day-of, and real-time markets operated by both the California Independent System Operator (ISO) and Power Exchange (PX).

PG&E said it paid 16.3 cents, 11 cents, and 18.7 cents per kilowatt-hour, respectively, to buy power in wholesale markets in June, July, and August 2000 (vs. 3, 3.9 and 4.1 cents per kilowatt-hour in 1999), while the state-mandated freeze on retail electric rates only allocated approximately 5.4 cents per kilowatt-hour for purchased power, leaving no mechanism to recover the higher costs.

"The level of these price increases cannot be explained by increases in the price of natural gas," said Edison and PG&E. "Moreover, natural gas prices have increased everywhere, but electricity prices in California and the Western region are far higher than in other markets."

They warned that continued high prices could jeopardize financial integrity: "PG&E and Edison ...