CAISO Price Cap Could Dissolve This Summer

By Published On: April 16, 2005

If supplies were to become dangerously thin this summer, the California Independent System Operator?s $250/MWh soft price cap could be temporarily lifted, said Yakout Mansour, CAISO chief executive officer. He maintained such a move would not recreate the financial havoc of the 2000-01 energy crisis because the amount of power that might be needed from the spot market would be far smaller. Mansour told <i>Circuit</i> that the $250/MWh cap, which can rise if a generator can justify a higher cost, is the clearing price. He added, ?Mitigation measures are much better than they were.? One reason there would be much less spot-market activity is because there are many more reliability-must-run (RMR) plants under CAISO contract, according to one source. RMR contracts cost more year-round but are always available. There also remain some power contracts set up through the Department of Water Resources that help take pressure off the spot market. Mansour?s predecessor allowed the hard price cap to become a ?soft cap? in December 2000?as Stage 3 emergencies were about to become quotidian?in order to attract supplies and prevent blackouts. Prices quickly soared. Alleviating price caps imposed during the height of the crisis led to former CAISO CEO Terry Winter falling out of favor with influential legislators. When Winter virtually removed price caps, California was able to import electricity to avoid exacerbating blackouts. At that time, about 35 percent of the state?s energy flowing through the CAISO grid was traded on the spot market. Today, around 5 percent of needed supplies are bought and sold on the grid operator?s market. The electricity supplied by CAISO?s spot market came with a huge price?up to nearly $10,000/MWh. Costs were compounded by alleged market manipulation from energy traders. The state claims the combination cost California consumers nearly $9 billion during the energy crisis. In early 2000, CAISO had capped prices at $750/MWh. This was after a year of incremental price caps on its ancillary services market, during which the Federal Energy Regulatory Commission was unsure whether price caps could be imposed by regional transmission organizations. During the state?s third power emergency in June 2000, price caps were lowered from $750/MWh to $500/MWh. That was in spite of then-senator Steve Peace?s call to lower caps to $250/MWh. Two months later, the ceiling was lowered to its current $250/MWh. <i>J.A. Savage also contributed to this report.</i>

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