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FERC Granted Market Rates To Generators For Emergency Power Generator Shows How To Make $9 Million in 3
Glorious Hours RESTRUCTURING TODAY (originally published by PMA OnLine Magazine: 07/98) The California ISO has and needs other markets than the Power Exchange. The Ancillary Services Market is an example. It helps "fine tune" the flow of electrons when the unexpected happens -- a power plant failure, a sudden spike in temperature. The energy can be dispatched within seconds, minutes or hours. Wednesday someone in the South needed 6,000 mw power. In the hours from 1 am until 10 am the buyer was able to get 500 mw at $1/mw. The price rose to $3.95/mw between 11 am and 1 pm then shot up to $2,500 at 2pm and $5,000/mw 3-5 pm listed as $7.5 million for those two hours. This table issued by the ISO helps understand what happened. Some of the math looks strange but we assume ISO knows something here that we don't and they had gone home when this was written:
Generators had a cost-based price cap on power into the Ancillary Services Market of $5-10, said Jeffrey Tranen, ISO CEO in a conference recently. ISO will soon ask FERC to instantly reconsider its decision to allow market based rates and hopes for a decision -- not in weeks -- in a few days. The ISO had told FERC there may not be enough competition in all those hours. And the other generators who haven't gotten market-base rate approval from FERC would not be able to sell the power for more than about $10 at a time when spot markets may be drawing much more. Since there is not much competition, Tranen is asking FERC to end the play of market forces -- fast. FERC had rejected a cap, Tranen said, but he's going back to ask again. "It's happening now as we foresaw it could." The ISO is seriously considering allowing resources from out-of-state sources to be allowed in a few hours a day "when we're short" to drive down some of the prices. Who were the companies at FERC that got the market-based rates? Tranen listed AES, El Segundo, NorAm and Duke. How many generators are credited to sell into that market who don't have the FERC pricing authority? About five to 10, said Tranen, have the $5-10 caps. Will residential customers be hurt? No, replied Tranen, since their retail price has been fixed by law through 2002. California had a cool spring thanks to El Niño but hot weather began to hit last week. Some supplier south of Path 15 -- the north/south constraint -- needed the emergency power possibly because of the weather. What action has he taken? Minutes before the conference call began he bid zero power for yesterday confident that in case of emergency they could come up with power somehow without running up a bill for $9,138,925 as they had a day earlier. "But we need some immediate regulatory relief." Wouldn't the buyer be the new owners of Southern California Edison plants? "Let's just say that I shouldn't comment on specific owners making bids." Does Tranen fear high offers in other areas such as the spinning (now generating) that has extra capacity available in minutes and non-spinning (not generating now but can get power out in 10 minutes) markets. "We expect it but I don't believe we've seen it yet," he replied. The ISO has other markets too such as the Congestion Management Market allocating space on transmission lines. When the grid is full congestion zones are established and scheduling coordinators "play the congestion management market, curtailing their power deliveries or generating more power," ISO said. WHAT COSTS $5,000 ONE DAY AND 1¢ 2 DAYS LATER? A megawatt. A megawatt for 1¢? Yep. The California ISO talked with FERC staff about the need for a big fix on the market-based rates for some companies while others have a $5-10 cap (RT, 7/10). No, FERC doesn't look at it like that. The market based rates meant market rates for everyone in California's own Ancillary Services market not just AES, the IPP whose name is on the FERC order, ER98-2843-000 for Redondo Beach (1310 mw), ER98-2844-000 for Huntington Beach (566 mw) and 2883 for Alamitos (2083 mw). The urgent request for reconsideration (RT, 7/10) will not be filed, ISO told us but the chatting with FERC staff will continue. ISO Thursday wanted the cap back on. Then came a call Friday for an emergency 500 mw and the ISO nervously bid Friday to buy power in the Ancillary Services market fearing it might have to pay $5,000/mw as it had Wednesday. They got the 500 mw and the bids ranged from 1¢ to as high as $7.87/mw, the ISO's Stephanie McCorkle told us late Friday. She wasn't allowed to identify the offeror. The market has corrected itself, she added. You can't help but wonder whether it was AES offering low prices as payback after the $5,000 in the 3-5pm time slot down south on Wednesday. The three gas-fired plants were recently bought from Southern California Edison. The ISO has designated some units at each plant as "must run" for reliability but even so does not have to sell power into the Ancillary Services market. The four services AES sought market rates for were regulation, spinning reserves, non-spinning reserves and replacement reserves. SoCal Edison intervened at FERC but didn't raise substantive issues in FERC's view. But the Metropolitan Water District of Southern California did. AES failed to submit adequate economic analysis and didn't demonstrate its lack of market power, Metropolitan alleged. ISO leaders were uncomfortable with letting the market set rates for emergency power believing that not enough bidders would be available on short notice 24 hours a day to provide competition. It wanted caps set on prices at $5-10/ mw. "We are not persuaded by the arguments of the ISO and others in opposition to the application," FERC wrote June 30. "As the ISO's pleading suggests, `thin` markets for ancillary services have occurred in California largely because the prevailing caps on capacity prices have not drawn forth sufficient capacity to meet demand. Substituting new caps would perpetuate the problem." But FERC agreed to revisit the issue if a problem arises. CALIFORNIA EMERGENCY POWER REACHES $9,999/MW The California ISO went into the Ancillary Services replacement reserve market yesterday for an unstipulated small amount of backup power and had to pay $9,999/mw in the 2-6pm period. The leadership reversed its Friday decision not to ask FERC for a cap on free market prices. ISO expects to have an urgent request for a cap by this morning. Meanwhile the ISO has put on its own $500/mw cap. FERC has a regular meeting set for tomorrow. On Friday the Ancillary Services market drew offers of 1¢ to $7.87/mw (RT, 7/13). FERC has rejected an earlier bid to cap the market. The ISO's bid to buy Sunday for Monday was met by offers to sell through the night from Sunday to Monday at 1¢/mw until the 11 am offer at $3.95 through 1pm then the price jumped to $9,999/mw through the 6pm hour. Magically the price fell back to 1¢ in the day ahead market for 7 pm through midnight. Meanwhile FERC's agenda for tomorrow doesn't have time set for discussion or an emergency review of the June 24-26 price spikes in the Midwest. The amount bought by ISO was:
So that's 556 mw for a total of $5.5 million. The ISO passes on the price to the requesting marketer whose name is kept secret as if the name of the seller. The firms buying plants from the incumbents were AES Corp, Dynegy (NGL), Duke Energy and NorAm. Restructuring Today is published 247 times a year for those watching the convergence of electricity, telephone and gas markets. It's issued on business days by US Publishing at 4418 MacArthur Boulevard, Washington DC 20007. Phone 1-800-486-8201 or 202-298-8201 and fax to 1-202-298-8210. One year's subscription is $487 in US funds (plus 8% sales tax in the District of Columbia). George Spencer, editor. E-mail: daily@restructuringtoday.com |
