Power Grid Officials Hike Emergency Price Cap

Directors of the state’s electricity grid, worried that fast-rising natural gas costs could crimp energy supplies, voted Friday to increase the price cap on emergency power purchases needed to keep the lights on during spurts of peak demand.

The board of the California Independent System Operator unanimously approved a 60% hike in the maximum price that can be charged in the so-called real-time electricity market, to $400 from $250 per megawatt-hour.

Cal-ISO officials stress, however, that raising the cap should make little difference in the monthly bills paid by utility customers, primarily of Southern California Edison Co., Pacific Gas & Electric Co. and San Diego Gas & Electric Co.

That’s because spot-market purchases account for less than 5% of the electricity those utilities require, compared with 40% or more during the 2000-01 energy crisis.

The price cap on last-minute power purchases has fluctuated since Cal-ISO was launched in 1998 under terms of the deregulation of California’s electricity market, and the cap was abandoned for a time during the energy crisis as skyrocketing natural gas costs pushed suppliers to sell electricity to other states where prices weren’t limited.

The Federal Energy Regulatory Commission reinstated price restrictions after blackouts raked the state and spiraling spot-market prices pushed utilities toward bankruptcy.

Rosemead-based Edison and the two other investor-owned utilities supported the cap increase, which must win approval from federal regulators to go into effect. So did the Utility Reform Network, a leading consumer advocate, and the Independent Energy Producers Assn., a generators trade group.

All agree that a higher cap is essential to maintain system reliability by giving generators an incentive to sell to California and to cover the cost of the natural gas that fuels their power plants. Gas prices have ranged recently from $10 to $13 per million British thermal units. That contrasts with $3 to $4 in the fall of 2002, when the $250 cap was imposed, Cal-ISO said.

Making sure that megawatts are available at a moment’s notice could be crucial to keeping the grid from foundering during hot spells this summer. A recent forecast by the California Energy Commission said electricity reserves in Southern California could be slim in August and September.

“With unpredictable fuel prices and intense competition for power around the West, we need to make sure out-of-state energy suppliers will offer their power,” Cal-ISO Chairman Ken Wiseman said.

“We do not expect prices to hit this higher cap often, and the volume at that price should be extremely low,” he said.

Utilities, which were caught flat-footed by soaring wholesale electricity costs in 2000 and 2001, are in a stronger position these days to weather spikes in the volatile natural gas and spot electricity markets.

State regulators have required them to secure the bulk of their future supplies by signing long-term contracts. Before the energy crisis, utilities had limited ability to sign such contracts.

In addition, grid officials say they are better at spotting attempts by unscrupulous generators to manipulate the market.

During the energy crisis, already tight electricity supplies worsened because Enron Corp. and other wholesalers withheld power and used questionable trading practices to drive up prices, investigators found.