FERC: Price caps did not sink electricity market

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FERC: Price caps did not sink electricity market

Bert Caldwell - Staff writer

Conservation and a slowing economy, not price caps, led to a downturn in wholesale electricity prices last year, according to a Federal Energy Regulatory Commission report released Thursday.

Electricity sold in West Coast electricity markets sold for an average $35 per megawatt-hour, far below the $92 per Mwh cap FERC established for California markets under certain conditions last April 26, the study conducted by the agency's staff concludes.

The cap was extended to all hours and to markets in the Northwest on June 19.

The report also concludes that reselling the power at $35 per MWh benefited ratepayers by offsetting some of the high costs of buying the power before the caps were imposed.

The study was prepared by members of FERC's staff in response to a directive included in the Energy and Water Development and Appropriations Act. Completion by Jan. 31 was required.

Electricity prices in West Coast wholesale markets jumped spectacularly in the spring of 2000, and remained at unprecedented levels through last winter.

Few new generating plants had been built, and the lowest streamflows in decades wiped out thousands of megawatts in generating capacity at dams in the region.

Blackouts were predicted for the summer of 2001. Retail rates to utility customers started climbing, almost doubling in Tacoma.

The governors of Washington, Oregon and California called for a price cap, but FERC opposed restrictions until April 2001. The unexpected move dropped the bottom out of an already softening market.

Power that cost $170 per megawatt-hour one week in June cost only $55 a week later.

FERC based its study on information collected from eight utilities in the Northwest and Nevada, including Avista Utilities, for the period of June 20 through Nov. 30.

Of the six utilities that provided data on wholesale market activity, four recorded net losses of between $67 million and $310 million. One reported profits of $105.6 million, another $61.4 million.

Spokesmen for Avista and Puget Sound Energy, also included in the report, said they had not seen the document and could offer no comment.

-- Anonymous, February 04, 2002


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