FERC Filings
COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION-San Diego Gas & Electric Company -Complainant v. Sellers of Energy and Ancillary Services Into Markets Operated by the California Independent System Operator and the California Power Exchange-Respondents D
THE COMMISSION HAS FASHIONED APPROPRIATE REMEDIES TARGETED TO THE MARKET FLAWS THAT IT IDENTIFIED
As stated above, the Commission properly identified the absence of forward contracting and other hedging mechanisms and the corollary presence of excessive reliance on spot markets as the major structural flaw in California’s wholesale electricity market. The Commission has wisely attacked this problem head-on by nullifying the mandatory buy-sell through the PX. Complementary measures include allowing IOUs to elect to be their own Scheduling Coordinator, thereby becoming eligible to provide power from their own resources to serve load and to self-provide ancillary services. By eliminating the mandatory buy-sell through the PX, competing exchanges will emerge and flexible products should become available. IOUs should be free, and indeed encouraged, to develop portfolios that hedge spot market risks, blend long- and short-term resources, and mix bilateral contracts with exchange-based financial products. Such an approach is commonplace now among local distribution companies (“LDCs”) on the natural gas side where LDCs often rely on a mix of short and long term contracts to meet demand.
The promise of forward contracting and risk management may be compromised if state rules are not modified to lift restrictions on forward contracting and to provide meaningful protection against after-the-fact prudence reviews. The Commission recognized the importance of parallel state actions to facilitate forward trading.<sup>30</sup> EPSA believes that the Commission can go one step further in its final order to assist California utilities in creating a prudent portfolio of supply resources. The Commission should encourage California to create criteria or procedures to give utilities a reasonable degree of certainty that, if such criteria or procedures are satisfied, their participation in a forward contracting process will continue to be deemed prudent without regard to subsequent changes in market prices. Armed with such findings, IOUs should be more willing to enter into forward contracts. Going even further, EPSA commends consideration of proposals presented by others to link formally the implementation of federal price-mitigation remedies to the state’s adoption and implementation of measures that encourage IOUs to rely more heavily on forward contracting.
In addition to supporting the elimination of the mandatory buy-sell requirement through the PX, and the related measures, EPSA supports additional elements of the Commission’s proposals: