FERC Filings
COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION IN OPPOSITION TO THE MOTIONS FOR EMERGENCY AND INTERIM RELIEF
II. Argument
The Commission and the electricity industry are well aware of the difficulties being experienced in California. It appears equally clear that, for some, assigning blame and championing politically driven “quick fixes” is easier than developing real solutions.
In San Diego Gas & Electric, the Commission found that a sufficient evidentiary record did not exist at that time in order to meet the standard required under Section 206 of the Federal Power Act, i.e. not only that the existing rates were unjust, unreasonable and unduly discriminatory or preferential, but that the rates proposed by San Diego were just and reasonable. Indeed, the Commission specifically found that SDG&E provided no evidence to demonstrate that all potential sellers are able to exercise market power, had not documented a single instance of a seller exercising market power during times of scarcity, and had not attempted to show that the conditions underlying the Commission’s approval of market based rates for public utility sellers of energy and ancillary services had changed.
Neither of these two filings, in particular the CPUC filing, standing alone without the benefit of any further information gathered by the Commission in its Staff’s Investigation, is sufficient to meet the evidentiary standard set forth in the San Diego Order. Each of these filings simply asserts that higher prices in California are the result of a dysfunctional market. Each of these filings ignores the market fundamentals (rising demand offset by limited new supply, higher gas prices, limited hydroelectric availability, higher cost of emission credits, hot weather, and an aging generation fleet) that have led to higher prices this summer. Each of these filings urges the Commission to impose rate restrictions, ignoring the two fundamental problems with the California market: (1) a structure that puts undue pressure on the more volatile short-term markets and (2) the imposition of price caps on purchases of wholesale energy and ancillary services, distorting the market and creating reliability problems. Price caps and market controls will not remedy this situation and will only exacerbate the problems associated with attracting new entry into the California generation market and delay the maturation of those markets. We will not simply repeat those arguments again. Rather, EPSA incorporates by reference its earlier pleadings in response to CEOB and CMUA.
To supplement the record of this proceeding, EPSA is also attaching to this filing a recently completed paper titled “An Initial Analysis of Recent Wholesale Prices, Price Caps and Their Effect on Competitive Bulk Power Markets.” In this paper, EPSA, with the assistance of Boston Pacific Company, Inc., examines the impact of price caps on rising wholesale power bills and concludes that the current California cap of $250 had little impact on reducing those bills. Had the $250 price cap been in place earlier, consumer bills this summer would have been only nine percent lower. The fundamental problem in California and elsewhere is not price spikes, but the mismatch of supply and demand, along with inefficient market rules.
If price caps do not afford the consumer benefit sought, the next question is whether they have a negative impact on the market. EPSA’s paper shows that they do, in three major areas: market entry, the development of risk mitigation tools and demand side response. These are not trivial considerations; each is critical to the successful development of competitive markets.
There is another aspect of the arguments made by PG&E, Edison and TURN and the CPUC that must be addressed. This Commission needs to be clear that the solutions to many of the problems facing California are the result of decisions by the CPUC, which the CPUC can change. Whatever financial consequences face PG&E and Edison are a result of the complex stranded cost accounting and rate freezes put in place by the CPUC and can be modified by that Commission. Further, the most chilling effect on forward contracting has been limitations imposed by the CPUC and its insistence on after-the-fact prudence reviews of those purchases. FERC should be focused on the functioning of the wholesale power markets, putting in place those rules that will facilitate and encourage workable markets, while urging the state commission to establish market rules that promote competitive retail markets and best serve California’s consumers.