FERC inquiry to tackle price distortions

The US Federal Energy Regulatory Commission (FERC) has launched an inquiry into spot market price caps in the Western Electricity Coordinating Council (WECC)

FERC is pursuing the inquiry to remove any potential market distortions created by the difference between the current and future bid caps in the California Independent System Operator (CAISO) energy markets and the spot market price cap in the rest of WECC.

The bid cap in the CAISO market is $750 per megawatt hour (MWh) and is due to automatically increase to $1,000 per MWh on April 1, 2011, unless FERC intervenes. Spot market prices in WECC outside of the CAISO are capped at $400/MWh.

The FERC order, issued yesterday (20 May), proposes moving the rest of WECC to a $750/MWh soft cap for all spot market sales. It would also increase the cap again on April 1, 2011, to $1,000/MWh, in line with the scheduled CAISO increase.

Susan Court, former FERC director of enforcement, now a partner in law firm Hogan Lovells’ energy practice, believes the proposal could have the intended effect of removing market distortions since it would bring the region into line with other eastern-organised markets that also implement a $1,000 per MWh price cap.

“More to the point, however, the western market of California and the surrounding areas will be subject to the same rules. By definition, that has to help reduce market distortions," she says.

Interested parties have 30 days from yesterday’s order to submit comments on the proposed changes to the WECC price cap.