FERC December 15 Order

On Friday, December 15, FERC approved an order (click here for the 150 page order www.westgov.org/wieb/power/ferc.pdf):

• Ending a requirement that California investor-owned utilities (IOUs) buy and sell all their power through the California Power Exchange (PX). The order returns to California PUC jurisdiction 25,000 Mw of generation still owned by the IOUs. The order allows the IOUs to execute bilateral contracts to hedge the cost of spot power purchased in the PX. FERC believes that this action is the most important element in its order to mitigate the electricity crisis.
• Imposing penalties for underscheduling load. The intent is to discourage companies from trying to schedule load in the real-time ISO market.
• Imposing a “soft cap” of $150 per megawatthour. Under the order, accepted bid less than $150 will receive the market clearing price. Any accepted bid more than $150 will only receive the price they bid (not the price of the highest market clearing bid) and will have to report certain information to FERC (e.g., plant heat rate, cost of NOx emission allowances, fuel cost). The soft cap is only in effect until April 30.
• Replacing the ISO stakeholder board with an independent board that will be organized in coordination with the State of California.
• Directing the ISO and the three California IOUs to submit procedures for interconnecting new generators.
• Establishing a technical conference to “facilitate the prompt negotiation of long-term power contracts at reasonable rates.”
• Setting in motion a more comprehensive market monitoring activity.

FERC did not elect to impose region-wide price caps. In the order, FERC said:

“Although we agree with the commenters that the Western region of the U.S. is an integrated electricity market, 128 we will decline to adopt a region-wide price cap at this time. There are no organized electricity markets outside of California to which a price cap could be applied, i.e., with the exception of California, there are no ISO or PX markets currently operating anywhere in the region. The majority of transactions that occur in the region do so on a bilateral basis.” 129

“Moreover, under the Federal Power Act, upon complaint or on our own motion, the Commission may establish new rates only if it first has a record to determine that the existing rates are unjust, unreasonable, unduly discriminatory or preferential. Further, once such a finding is made as to existing rates, the Commission must have a record to support the new rate it establishes as just and reasonable. The record in this consolidated hearing proceeding only extends to sales into the ISO and PX markets; thus, the Commission has little or no evidence on which to assess prices of bilateral transactions either within California or elsewhere in the Western region. While the issue of generation supply availability in California is an important one, no commenter has submitted evidence that conclusively demonstrates that the adoption of regional price cap would beneficially influence the availability of supplies in California. In addition, no commenter has documented a single instance of a seller outside of California exercising market power during times of scarcity. In sum, the commenters have not met the burden of showing that a price cap on all sellers supplying energy and ancillary services in the Western region is justified and in the public interest.”

In a concurring opinion, Commissioner Bill Massey said,

In this order I would have preferred to open a section 206 investigation into wholesale prices in the entire western interconnection. We have a number of requests before us to do this, based upon the theory which I support that the entire western interconnection is one big machine that ought to be dealt with as a whole. A number of public officials from the Pacific Northwest in particular are very concerned about both the volatility and level of wholesale prices. I share those concerns, and would have opened a formal investigation in this order. I am told by our legal counsel that such a formal investigation is probably a necessary precursor for any type of region-wide price relief.