Western Markets: An Investor's Minefield

 

In the Jan. 15, 2003, edition of , Ben Richardson, senior consultant at Platts Research & Consulting, described efforts under way to improve transmission capability between systems in the Western Electricity Coordinating Council (WECC). These efforts aim to improve power exchange and to increase reliability. Along with greater coordination of transmission operation, these outcomes would foster a better investment climate for new generation in the West. However, even if all economically sensible investments in transmission occur, the West is likely to be far short of functional competition for wholesale and retail supply. Many barriers exist.

State control of California's generation. In California, more than 16 percent of supply is controlled by the state in the form of contracts for output administered by the California Department of Water Resources (CDWR). CDWR's efforts to renegotiate its over-priced agreements, combined with California's fitful efforts to recreate a wholesale power market, are likely to stifle investment for the next several years. Ultimately, CDWR intends to assign these contracts back to California's utilities.

Artificially low price cap. Tight reserves in California triggered price caps of $91/MWh throughout the WECC in 2002. Efforts are under way to raise these caps to $250/MWh, which would still be 75 percent below caps set by ISOs in the Northeast United States.