Paul Clanon / November 21, 2000 / CPUC: 096
415-703-1926 /
CPUC CALLS ON FERC TO IMPOSE PRICE CAPS
AND WORK TOGETHER TO IMPROVE California’S
ELECTRICITY MARKET
The California Public Utilities Commission (CPUC) today voted unanimously to request that the Federal Energy Regulatory Commission (FERC) impose price caps in the California electricity market because the market is not competitive and is dysfunctional.
In a pleading the Commission will file tomorrow with the federal agency, the Commission will argue that the FERC’s proposed remedies are inadequate to protect California consumers because the FERC finds that California electricity prices are not “just and reasonable”. The Commission will detail how federal law requires it to order refunds to California consumers who have been charged those unjust and unreasonable rates. The Commission stated today that the FERC’s finding that California markets are not competitive requires the FERC to impose price caps as a matter of law.
The Commission today also questioned FERC’s factual analysis, concluding that it is inadequate and inappropriately legitimizes claims of increased costs and underestimates the extent of market power occurring in California markets. The CPUC’s staff analysis suggests that claims of tight supply and increased costs are overstated and do not alone explain the price spikes over the past several months.
CPUC staff estimates that California households and businesses were overcharged more than $4 billion in recent months as a result of market power in wholesale electricity markets. CPUC staff also finds evidence that power sellers have manipulated the market in efforts to increase prices. The finding highlights the need for the FERC to grant a recent Motion to Compel filed by the CPUC, which would require generators to respond to CPUC subpoenas with data about their sales and operations.
The Commission criticized FERC’s proposed price mitigation measures as ineffective to constrain market power under current market conditions, finding the FERC’s “soft cap” proposal will not result in reasonable prices during periods of high demand. The filing concludes that because California wholesale markets have experienced extraordinary prices during periods of moderate demand, soft caps could fail to keep prices down during many if not most pricing periods.
The Commission also criticized a number of FERC proposals as inadequate to prevent further market manipulation. Among those FERC proposals are limiting refund liability to opportunity costs, that is, those costs that sellers might have made in other markets. The Commission finds that to the extent other western power markets result in extraordinary prices, the use of opportunity costs will understate how much power sellers have overcharged California customers.
The Commission also opposed the FERC’s proposal to penalize underscheduling, finding that the penalties were one-sided and failed to recognize the role of power sellers in creating supply and demand imbalances. It also opposed FERC’s proposal to reconstitute the ISO governing board rather than deferring to California policy-makers in creating a new board that is independent and free of conflicts of interest.
According to the Commission, the FERC should recognize that the state has an appropriate role in crafting long term solutions to problems in California. The Commission urges the FERC to hold further proceedings in these dockets to resolve factual disputes and investigate California conditions more thoroughly.
Three Commissioners voted to append a statement clarifying their perspectives on the monopoly status of the Power Exchange (PX) and the role of bilateral contracts in mitigating high prices, the PX’s single price auction and the development of an incentive scheme to improve scheduling of power.
The Commission’s filing with the FERC on November 22 will respond to an order issued by the FERC on November 1, 2000, in a complaint filed by San Diego Gas and Electric Company against sellers of energy services in California, Docket No. EL00-95-000.
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