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News Analysis

Industry experts debate whether so-called "price mitigation measures" miraculously solved the California crisis.
Fortnightly Magazine - January 15 2002

is like my teenager saying 'nothing will happen, so can I please have the keys to your car and a bottle opener,' " he says.

Others attribute the drop in wholesale prices to a plethora of factors, price caps among them. The question of what happened to wholesale prices does not have a simple answer, says Gary Stern, director of market monitoring for Southern California Edison. The caps have had a very beneficial effect of keeping prices at a lower level, he says, but lower prices are also due to milder weather this past summer, increased levels of conservation, and a significant decrease in natural gas prices. "It's unfair to say that price dropped due solely to FERC caps, but they are one of several factors keeping prices stable and lower," he says.

Others concur with Stern's assessment. Patrick Mullen, regional public affairs manager, California operations, Duke Energy, says, "obviously, caps had some effect." But he points out that there was also increased conservation in the wake of the California Public Utilities Commission allowing retail rates to increase, plus a cool summer, and new plants online.

Even FERC refuses to take all the credit for wholesale electricity price drops. "Mitigation has been very successful, but it is unfair to attribute falling prices and stability as 100 percent a result of mitigation," according to one FERC official. "Good weather, conservation-a lot of factors that came into play. ... What mitigation did helped psychologically, FERC and others helped, [because we] signaled a willingness to step in and introduce stability into the market. It's very difficult to parse through how much to attribute to caps versus the weather," the official says.

Did FERC's Incantation Increase Megawatts Online?

Perhaps even more interesting than the downward wholesale price phenomenon is the marked increase in generation levels between May 2001 and June 2001. In May, 13,431 megawatts on average were offline-compared to 4,012 in May 2000. Then in June, the offline level plummeted to 6,794-still far above the offline levels for June in the two previous years (2,683 in 2000; 1,216 in 1999), but a terrific drop nonetheless. () Indeed, the drop between May and June for both 1999 and 2000 was an average of 1,570 megawatts.

According to Michael C. Moore, Commissioner, California Energy Commission, the baseload level of generation did not increase significantly between 2000 and 2001. Yet, the incidences of forced offline outages were dramatically higher in 2001. For example, in February 2000, the average was around 3,200 megawatts; yet one year later, the average generation offline increased to around 10,900 megawatts. Moore says that some of that increase must represent downtime resulting from running plants flat-out during California's extended crisis-there would naturally have been a higher incidence of outage. As for the precipitous drop between May and June, Moore notes, there was more stability in the market, with long-term contracts giving long-term comfort in market. He speculates also that maintenance decisions perhaps were made more routinely.

But those factors account for perhaps half of the forced outages before June 2001, in Moore's view. "Fifty