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News Digest

Fortnightly Magazine - November 15 2000

are each, in effect, loaning money to their customers to pay their energy bills. In turn, PG&E and Edison have had to borrow money to make the payments." .

California Market Surveillance. At its meeting on Oct. 4 the California ISO's Board of Governors rejected a motion to implement load-differentiated price caps based on natural gas prices weighted by heat content, but did not otherwise appear to issue any formal response to reports issued in September by the ISO's market surveillance committee.

On Sept. 6, the MSC issued a report finding that June 2000 price spikes in the ISO's markets for energy and ancillary services were nearly triple the level that should have been expected under competition.

Later on Sept. 21, the MSC had urged that price caps still were needed in ISO markets, given various structural market flaws, including lack of price-responsive demand:

"We regretfully conclude that the ISO's price cap authority must be extended, even though price caps are flawed as a long-run solution."

New York Price Distortions. Describing markets as "still adversely affected by flaws," the New York Independent System Operator asked the FERC to extend its "temporary extraordinary procedures" until April 30 for correcting price distortions.

And it warned that some software fixes actually could make things worse, as traders become "more imaginative in adapting their bidding strategies to the changing market environment."

Nevertheless, the ISO did report some progress in making prices more logical. For example, the ISO said as last summer turned to fall, it was forced to "correct" real-time prices after the fact less frequently than before. For September, such price corrections occurred for only 0.42 percent of discrete pricing intervals. By comparison, it had to correct real-time prices more frequently in August (0.53 percent of the time), July (1.87 percent), and June (3.92 percent). .

New England Capacity Prices. Supported by state PUCs, but opposed by other power marketers like itself, Alternate Power Source Inc. asked the FERC to force ISO New England to recalculate April clearing prices in the ISO's auction for installed capacity (ICAP market) to correct allegedly distorted prices.

APS attacked an ISO ICAP price of $3,240 per megawatt-month, saying that the capacity should have had a "zero marginal cost," since the April ICAP market showed an excess supply of 2,522 MW. It argues that even if the FERC cannot order retroactive refunds to traders, the ISO has a legal duty under the filed rate doctrine to recalculate prices in prior periods that are not consistent with tariffs that govern price determination.

In fact, the ISO already had recalculated ICAP prices for January, February, and March, on finding "anomalous conduct" by market participants, and the FERC itself in June had told the ISO to kill the ICAP auction, since it wasn't functioning properly. But the ISO has declined since to mitigate ICAP prices for April, May or June. It argued that under its Market Rule 17 it can only examine bidding behavior-not the prices proper-and so cannot act without evidence of specific conduct by bidders.

Meanwhile, the Maine PUC joined the