News Digest

Fortnightly Magazine - September 1 2000

News Digest

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Power Markets

Price Cap Backlash. The Federal Energy Regulatory Commission granted "fast-track" processing to review the complaint filed by Morgan Stanley Capital Group to overturn the $500-per-megawatt-hour price cap imposed in late June by the California Independent System Operator (but see below), but saw no need to force the ISO to rescind the cap.

As the FERC explained, a cap sets the price at which the ISO will buy power, and does not restrict options for sellers, as they can choose to sell into other markets.

Commissioner Hébert concurred in the result, but called on the FERC to investigate the ISO. "Getting to the bottom of the problem, in my view, requires us to begin a proceeding to rescind our approval of the ISO as the operator of the California grid." .

Earlier, on July 26, the FERC had asked its staff to conduct an investigation of price volatility in wholesale U.S. power markets, and to report back by Nov. 1, so that the commission could use the findings in evaluating proposals due from utilities by Oct. 15, regarding FERC Order 2000 and plans for regional transmission organizations.

California. On Aug. 1 the board of governors of the California Independent System Operator voted 15-6 (two abstained) to lower the price cap from $500 per megawatt-hour to $250, effective from Aug. 7 to Oct. 15, in the real-time markets that it administers for ancillary services and congestion relief.

Northeast Region . In separate orders, the FERC imposed temporary caps of $1,000 per megawatt-hour (the same level as PJM's price cap) governing bids by power suppliers in energy markets run by the New York Independent System Operator and the New England Power Pool. But the caps did not escape a dissenting opinion from commissioner Curt Hébert, who accused the majority of rushing in to cover "utility mistakes" that created exposed positions in the market. Hébert likened the majority's concern over using emergency measures to Captain Louis Rénault, the gendarme in the film "Casablanca" who was shocked to find gambling inside Rick's bar. Hébert repeated Casey Stengel's lament: "Can't anyone here play this game?"

  • New York ISO. In New York, the FERC cited a lack of demand-side participation. "If load cannot respond to dramatic increases in prices," said the FERC, "then generators can submit very high bids that the ISO must accept when supply is tight."

    Nevertheless, the majority declined to include "anti-gaming" tariff rules requested by the New York state commission and various intervenors. Such rules would have placed a $24,000-per-megawatt limit on payments to suppliers over 24 hours, to prevent suppliers from attaching conditions to their bids requiring high minimum general levels or long minimum run times, as a way of evading the bid cap. Further, the bid cap will not apply to ancillary services, emergency imports into the region, or to so-called "sink price bids," which set the scheduling queue for exports out of the ISO area, since such bids do not affect prices paid by New York buyers.

    The ISO board had sought the cap (set to