LOS ANGELES, July 17 (UPI) -- Saying they needed to act to insure adequate supplies of electricity in the future, federal regulators Wednesday ordered the cap on wholesale power prices in 11 western states raised by more than double the current amount starting this autumn.
The Federal Energy Regulatory Commission said its decision to raise the price cap from its current level of $91.87 per megawatt hour (MwH) to $250 MwH would create "a robust, stable competitive market," but California officials quickly protested that the state was being set up for another round of skyrocketing power prices and rolling blackouts.
"FERC is once again putting energy generators back in charge of California's electric grid," said Gov. Gray Davis, a frequent critic of FERC's views on regulating the western power markets. "This is tantamount to putting the fox in charge of the henhouse again."
Price caps have been a contentious topic of debate since the red-hot bull market of 2000 and 2001 staggered California's largest utilities and forced the state to step in to the deregulated market and spend billions of dollars of taxpayers' money on wholesale power to prevent outages.
Davis and other California lawmakers repeatedly called on FERC to institutes a cap and alleged that private generating companies such as Enron had "gamed" the market in order to force prices higher with little regard for the state's consumers.
FERC repeatedly refused on the contention that price caps would cause power producers to pull completely out of the California market and, more importantly, cancel plans to build new power plants that would increase supply.
"Market rules and mitigation measures alone will not insulate California customers from potential reliability problems or price fluctuations," FERC said in its announcement Wednesday. "A key ingredient in developing long-term, stable markets is adequate infrastructure -- the transmission lines, generating plants, and natural gas pipelines needed to meet growing energy demands."
The current cap instituted in June 2001 was aimed at giving the California market time to get more power plants projects under way, and FERC officials had indicated this spring that the situation would be changing in the fall.
"In striking a balance between the need for investor confidence in the markets to bring necessary generation and infrastructure on line and the need to protect against market abuse, the Commission set a $250 MwH bid (selling price) cap for all sales in the Western Energy Coordinating Council beginning Oct. 1, 2002," FERC said. "In other organized power markets in the country, a $1,000 MwH bid cap is in effect."
FERC also said that its order included a key provision that requires generators to sell power to California if they have it available, a move that should prevent power sellers from squeezing the California market.
"The Commission (FERC) deemed this requirement to be essential to prevent physical withholding during the continued recovery of the western marketplace," FERC said. "Many observers have concluded that adoption of this requirement in 2001 led to significant calming of the western markets.
Davis conceded that the selling requirement would help California's bottom line, which he has said in the past is "keeping the lights on" in the state.
"The only silver lining is a request that energy generators must continue to offer electricity to California," said the governor, who is up for re-election in November. "Of all the requests I made, this is the only one FERC granted."
The FERC order, which was drafted with input from the California Independent System Operator, also included a safety measure known as an "automatic mitigation procedure" that keeps the current $91.87 MwH price in the mix.
Under the AMP, a process that is used in the Northeast market, sellers bidding more than $91,87 MwH will be subject to the AMP review by an independent monitor and could see their prices recalculated based on an analysis of the seller's production costs.
