FERC Finds That California Electricity Prices Are "Unjust, Unreasonable"

November 01, 2000

November 1, 2000

Utility calls for further study, action on market power abuses and refunds

WASHINGTON, D.C., Nov. 1, 2000-Southern California Edison commends the Federal Energy Regulatory Commission (FERC) for concluding that electricity prices in California have been unjust and unreasonable.  The company also expressed cautious optimism regarding a number of remedies FERC proposed today to address the major dysfunctions in the state's wholesale electricity market. 

"We are encouraged by FERC's overall finding, which confirms what we have indicated all along about the astronomical electricity prices produced by a seriously flawed wholesale market," said SCE Chairman, President and CEO Stephen E. Frank.  "This is a promising start, but we join Governor Gray Davis in urging FERC to continue the unfinished task of investigating past market power abuses by sellers and adopting effective structural remedies to make the California markets workably competitive and to stabilize electricity prices for our consumers."

Today's FERC order, based on results from a staff investigation into the California wholesale electricity market, found that "these [market] structures and rules, in conjunction with an imbalance of supply and demand in California, have caused, and continue to have the potential to cause, unjust and reasonable rates for short-term energy . . . and that there is clear evidence that the California market structure and rules provide the opportunity for sellers to exercise market power when [electricity supplies are] tight and can result in unjust and unreasonable rates."

"Clearly more work is required here," Frank said.  "We're pleased that FERC is not foreclosing to go back and continue its investigation of past market power abuse, and that electricity trading going forward would be subject to refunds in cases where abuses are determined."
 
As a price and market power control mechanism, the Commission proposed a number of remedies, including a "soft" price cap of $150/MWh in the markets run by the California Independent System Operator (Cal-ISO) and the California Power Exchange (PX). Under the proposal, the highest bid under $150/MWh would set the market clearing price. Bids over that level, however, would be paid only to the particular generator or marketer if dispatched; furthermore, the generator or marketer would have to file confidential cost data with FERC. 

"We are pleased that FERC has reaffirmed the price cap concept and that the caps would apply to all parts of the spot markets in California," Frank said.  "We are disappointed, however, with the cap limit of $150/MWh.  We think this is too high. 

"As noted in our Oct. 16 FERC filing, we urged that the cap be lowered to $100/MWh.  We also supported Cal-ISO's recently adopted load differentiated caps, which would provide more immediate procurement cost relief for California consumers."

Additional remedies proposed by FERC included: restructuring of the governing boards of Cal-ISO and the California Power Exchange (PX); imposing penalties for underscheduling; and eliminating requirements that utilities sell and buy from the PX, thereby decreasing reliance on the volatile spot market.

"Ending this buy-and-sell provision would free utilities to have broad discretion to buy power in other markets, expand our contracting ability, and enable us to use our own generation to better serve our customers," Frank noted.

If adopted, the FERC order would go into effect in 60 days.  SCE will further evaluate the FERC proposals to determine whether they provide adequate protection to the consumers, utilities and the state's economy.   SCE will provide formal testimony regarding these issues at a FERC hearing on Nov. 9.

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An Edison International company, Southern California Edison is one of the nation's largest electric utilities, serving more than 11 million people via 4.3 million customer accounts within a 50,000-square-mile area within central, coastal and Southern California.