Higher price cap on power sought:
Impact on consumers limited, experts say
Nov 10, 2005 - The San Diego Union-Tribune
Author(s): Dean Calbreath
Nov. 10--On the heels of a nationwide rise in natural gas costs,
California energy authorities are considering a 60 percent increase in
the cap on wholesale electricity prices, marking the first time the cap
might rise since the state's energy crisis of 2000-01.
But the proposed rise in the cap, from $250 to $400 per megawatt
hour, would not take effect until at least next year. And energy
officials -- as well as some consumer advocates -- say the effect on
consumer electricity prices is likely to be limited.
Most of California's electricity is now purchased through long- term
contracts. The price caps only affect power that is purchased on the
spot market, estimated at 2 percent to 5 percent of purchases.
"At one point in time, the price cap was the only thing that stood
between us and Armageddon," said Mike Florio, staff attorney for The
Utility Reform Network, or TURN, a consumer group in San Francisco. "But
the price cap is a lot less important than it used to be. If the spot
price blips to $400 for a few hours when a plant goes down or a power
line goes out, nobody's going to notice."
San Diego Gas & Electric Co. officials declined to discuss the
proposal, saying they needed more time to review it.
The proposal to raise the price caps was made yesterday by the Market
Surveillance Committee of the Independent System Operator, or ISO, which
manages much of the state's power system.
The committee, which consists of academics from such institutions as
Stanford and Johns Hopkins universities, recommended raising the cap to
reflect the rising price of natural gas.
The present cap was established in 1998, when the price of natural
gas in California was $2 to $3 per million British thermal units.
But the spot price for natural gas has skyrocketed to between $10 and
$12 per million BTUs, which led the committee to propose raising the
cap.
Committee member Jim Bushnell, research director of the University of
California Berkeley's Energy Institute, said the committee worried that
if gas prices continue to rise, the costs of generating electricity
could outstrip the $250 cap.
"There were ongoing concerns that the cap might get caught below
generating costs," Bushnell said. "We would run the risk that some
generators couldn't operate in our market and would choose to sell their
power out of the state."
The price caps played a key role in the state's energy crisis five
years ago.
The caps were lifted when the state deregulated the energy market in
2000, which allowed power companies such as Enron to push the price of
electricity to as high as $1,400 per megawatt hour. After a wave of
blackouts and skyrocketing prices, the caps were restored in 2001,
helping quell the market.
Florio, who repeatedly voted for price caps during his tenure on the
ISO board between 1997 and 2005, said they were especially crucial
during the energy crisis because the state was purchasing most of its
electricity on the spot market.
Since then, he said, the caps have become less important because the
state buys most of its power through long-term contracts.
Bushnell added that there is much more competition on the market
these days, which should work to keep prices low.
Before the plan to raise the cap takes effect, it must be approved by
the ISO board, which probably will not take place until mid-December,
ISO spokesman Gregg Fishman said. After that, the plan must go to the
Federal Energy Regulatory Commission in Washington.
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