FERC's California Caps: Just Smoke and Mirrors?

Deck: 

Industry experts debate whether so-called “price mitigation measures” miraculously solved the California crisis.

Fortnightly Magazine - January 15 2002
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Wholesale electricity prices are a darn sight lower in California these days than they were last May, before the Federal Energy Regulatory Commission (FERC) implemented price caps in May and expanded them in June. But, there is widespread disagreement over whether the caps were the cause, or merely coincidental with other downward pressures, such as moderate weather and generally increased supply. Get the answer right, and you have the long-term fix for California. Get it wrong, and California will likely see high wholesale prices again in 2005-if not before. And, FERC has until September 2002 to decide.

In the weeks before FERC implemented what it calls price mitigation measures-what most others call price caps-dire warnings were issued by generators that the caps would cause yet more blackouts in beleaguered California. On April 23, the Western Power Trading Forum predicted that price caps "will cause more blackouts in the West, chase away much-needed new generation, and jack up wholesale power costs." After FERC applied caps to California on May 29, but before applying them to the entire western region, Reliant Energy intoned that "[t]he current price caps, which send inaccurate market signals, are actually decreasing supply and increasing demand thus worsening an already dire situation."

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