Governor Gray Davis effectively signed the death warrant for the competitive electricity market in California, by passing into law a bill that caps residential power rates at ยข6.5/kWh, see MPS September issue. The governor also signed a related bill that will accelerate approvals for new power plants, hopefully cutting the process from a year to six months
However, despite the moves to accelerate power development in the state, power plant development companies have warned that a cap on potential earnings will see investment in new generation fleeing the state for more lucrative regions.
Regulated utilities like San Diego Gas & Electric (SDG&E), Southern California Edison (SCE) and Pacific Gas & Electric (PG&E) have also announced that capped rates will see the companies taking hits amounting to billions of dollars. If the cap is extended through to December 2003, possible if the Public Utilities Commission deems it to be in the public interest, these figures could rise still further. Market analysts at Fitch have released a report on the Californian power market warning that continuing high power prices could affect utility credit ratings with negative implications, making it still harder to develop plant in the state.
The move on retail prices follows a number of restrictions on the wholesale market that have seen the price cap fall from $750/MWh to $250/MWh since June. Now, the state Electricity Oversight Board (EOB) has directed the Independent System Operator (ISO) to demonstrate why price caps in the ancillary services and spot market should not be further reduced to $100/MWh. The EOB is to report to the legislature on
1 December.
However, some sources have suggested that the price cap investigation is a precursor to a more serious review of the ISO and the California Power Exchange (CalPx) expected when the legislature meets again next year.
Remarkably, the state has chosen just this moment to shut down a considerable chunk of capacity for maintenance.
With as much as 15 per cent of total installed capacity off line over the coming months, some 4500 MW, the state faces another critical time just as cooler weather should have eased power market restrictions. This could see high prices beyond the typical summer peak period, although the ISO is reluctant to give details of the schedules for fear of market manipulation.
