FERC Filings
REQUEST FOR CLARIFICATION OR IN THE ALTERNATIVE REHEARING OF THE ELECTRIC POWER SUPPLY ASSOCIATION-Docket No. EL00-95-012, Docket No. EL00-98-000, Docket No. RT01-85-000, Docket No. EL01-68-000
ARGUMENTS
1. Mitigation Measures that Cap Prices Below the True Market Price Will Only Delay Development of Competitive Markets
As EPSA has repeatedly warned the Commission, a reliance on mitigation measures that cap prices below the true market price will provide only short-term political relief, not meaningful reform, for California’s dysfunctional energy markets. The Commission has previously recognized that the primary problem facing California’s bulk wholesale power market is a fundamental mismatch of supply and demand. Thus, solutions to the problems adopted by the Commission must ensure that additional generation infrastructure development is encouraged by any mitigation plan adopted. A move towards below-market price caps wholly fails to meet that requirement. Clearly, the complex proxy approach set out in the April 26th Order engenders uncertainty, undermines market confidence and will, in turn, discourage much-needed investment in California.
For competitive markets to flourish, supply and demand must interact freely to determine the price, thereby allowing market participants to make intelligent resource allocation decisions. This result cannot be replicated by the regulatory efforts to “mimic” the outcomes of a robust market, particularly during periods of scarcity. The best defense against price spikes is to encourage greater numbers of suppliers to enter the market, not to restrict existing suppliers to artificially determined rates.
In addition, price caps will lead to a sub-optimal mix of generating units, favoring base-load plants when peaking units may be needed. Peaking plants must recover their entire operating cost in a limited number of days, or even hours. Competitive power suppliers bear all the risks associated with these plants and must have confidence that market-clearing prices will reach the levels necessary to ensure a return on their investment.
Finally, below-market price caps will discourage demand side management by dampening price signals and discourage the development of much-needed risk management tools.