FERC Filings
COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION ON THE INVESTIGATION OF PUBLIC UTILITY RATES IN WHOLESALE WESTERN ENERGY MARKETS
III. The Proposed Mitigation Cannot Apply to the WSCC Bilateral Market
The WSCC lacks the type of ISO-run market to which the April 26th Order’s requirements apply in California. While EPSA appreciates the fact that the proposed price mitigation only applies to a very small percentage of California’s transactions in the real-time market, the Commission must recognize the fact that the WSCC does not have a real-time clearing spot market.
The simple fact that the WSCC’s transactions consist of predominately bilateral transactions, including day-ahead sales, makes the Commission’s proposal to extend CAISO price mitigation procedures, including setting a proxy price in the WSCC, unworkable.
Even the Commission itself, in the December Order, recognized that, “there are no organized electricity markets outside of California to which a price cap could be applied.” Further, the Commission went on to state that “bilateral contracts often contain provisions which index damages for non-performance to certain index prices. Thus the imposition of a regional price cap could potentially result in an alteration of the existing terms and conditions of a myriad of bilateral contracts, resulting in an undue burden for all concerned.” Indeed, market participants will soon flee such markets, a result that only promises to adversely impact reliability.
If the Commission does adopt mitigation for the WSCC markets, certain changes to the California-based mitigation measures will be needed.
Most importantly, because the WSCC market relies on bilateral transactions, the Commission’s disallowance for opportunity costs is misguided. As we stressed in our rehearing comments of the Commission’s December 15th Order in this docket,
<sup>Opportunity cost pricing is a standard, economically justified practice under a market-based structure, particularly in markets offering multiple choices to suppliers in terms of geographic and product markets, as well as in sequencing of bids.</sup>
If the Commission extends such mitigation to the WSCC, suppliers in the region will be required to justify bids above the cost-determined proxy price. In doing so, they should not be deprived of presenting economic justifications such as opportunity costs. Such action will in fact have a counterproductive effect on the exact market the Commission aims to protect.