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California PX asks FERC to act on congestion bid caps

Dec. 12, 2000—The California Power Exchange Corp. (CalPX) filed an emergency motion Monday asking the Federal Energy Regulatory Commission to relax caps on congestion management bids in the day-ahead and day-of wholesale electricity markets.

It was the second emergency filing by a California wholesale market participant in as many days. Without immediate action, CalPX officials said bids will once again shift into the real-time market.

On Friday, the California Independent System Operator (ISO) filed an emergency tariff to relax the �hard cap� of $250/MWh on sales in the real time market. FERC approved the motion that day. The reason for the ISO�s filing was to increase the amount of generation available in real-time by ensuring generators can recover operating costs when they are chosen to supply imbalance energy.

Gas prices have risen so dramatically some gas-fired power plants could not operate and recover fuel and other variable costs under the $250/MWh cap. With western regional electricity prices rising higher than the cap, generation was being sold outside of California.

But the California ISO�s Friday filing did not change caps on �adjustment bids� or the price for congestion management , says Jesus Arrendondo, spokesman for the CalPX.

All bids into the day-ahead and day-of markets must contain an adjustment bid. Because those bids are still capped at $250/MWh, generators know in congestion situations they will be unable to protect their schedules at prices above $250/ MWh.

This means generators will wait and bid into the real-time markets where the hard cap has been lifted to recover higher market prices.

Because the caps on adjustment bids remain at $250/MWh, the unintended result of the California ISO�s filing and subsequent FERC approval is a shift of bids away from the California PX�s forward markets and into the real-time markets.

The CalPX agrees with the California ISO�s action to get a new �soft cap� to encourage sale of generation into California. But without a change in congestion management rules, the action could have �dire, irreparable, and unintended consequences to the California markets,� according to the filing.

�The day-ahead market will get killed unless the congestion rules are changed at the same time,� says Arrendondo. �The ISO new tariff rule is destroying our market.�

The CalPX states in its filing that several participants will no longer be able to bid their generating resources into the CalPX day-ahead or day-of markets under the new tariff.

The CalPX says the only way to fix this is to lift the cap on the adjustment bids simultaneously to eliminate the disincentive in bidding in the day-ahead and day-of markets.

�This modification is needed to maintain the viability of the forward markets and forestall withholding of supply until real-time operations, when the California ISO is willing to pay any price to avoid reliability problems,� the filing states.