Cal-ISO May Raise Price Cap

For the first time since the energy crisis ended in 2001, California’s grid operator is considering raising the price cap on wholesale electricity to compensate for increasing natural gas costs.

A California Independent System Operator advisory panel Wednesday recommended that the Cal-ISO board next month raise the cap for power market bids to $400 a megawatt-hour from $250.

The 60% increase is necessary to ensure that electricity producers will continue to sell electricity in California, the draft recommendation said. The change would apply to less than 5% of the power consumed in the state, spokesman Gregg Fishman said. Most electricity is sold under long-term contracts.

The $250 price cap was established in 1998, when natural gas sold for $2 to $3 per million British thermal units. The cap was eliminated in late 2000 as the natural gas used to fuel nearly half of the state’s power plants soared, and suppliers were selling electricity out of state where prices were higher. The cap was reinstated in 2001 to control high prices for the customers of Southern California Edison, Pacific Gas & Electric Co. and San Diego Gas & Electric Co.

Natural gas futures on the New York Mercantile Exchange have climbed 56% over the last year, closing Wednesday at $11.669 per million BTU.

The plan also needs the approval of the Federal Energy Regulatory Commission.

Bloomberg News and Reuters were used in compiling this report.