<article><p class="lead">Power market participants in the US last week asked federal regulators to deny the request of California electric utilities that payments for wholesale supply in August exceeding $1,000/MWh be refunded.</p><p>Southern California Edison and Pacific Gas &amp; Electric last month asked the Federal Energy Regulatory Commission (FERC) to order refunds after the soft wholesale power price cap in the Western Electricity Coordinating Council (WECC) was exceeded during 17-19 August.</p><p>Weather-induced demand spikes at that time and other factors prompted prices at several hubs in WECC to <a href="https://direct.argusmedia.com/newsandanalysis/article/2147608">exceed the cap</a> and in at least one case to double it. </p><p>The California utilities also asked for full cost justifications under FERC Order 831, which sets bidding rules for the California Independent System Operator (CAISO), which is part of the WECC. </p><p>The jurisdiction of Order 831 beyond California was questioned by several marketers and utilities that responded. Most of the transactions over the cap were at WECC locations outside of CAISO. Macquarie said none of its sales were "cost-based offers from resources into the CAISO."</p><p>Marketers and utilities also responded that cost justification and refunds should be denied, frequently citing that their buyers in transactions above the cap have not asked to be refunded.</p><p>Tenaska Power Services said none of the California parties were involved in the spot sales at issue, and that no party has alleged that Tenaska possessed or exercised market power in the sales.</p><p>Related to the requested refunds, the department of market monitoring of the CAISO asked FERC to develop and provide clear guidance and precedent on what constitutes valid cost justification for sales above the cap. And green lobby group Public Citizen asked for all the cost justification dockets from each market participant to be consolidated by FERC. </p><h3>October filings reveal justifications</h3><p>FERC instituted the $1,000/MWh soft cap in 2011 to discourage energy sellers from physically withholding energy from the marketplace to drive up prices later. The commission has no standard for the information participants should provide to justify bids exceeding the soft bid cap.</p><p>So far, FERC has only asked market participants to explain their trading activities above the cap.</p><p>Power marketers, utilities and generators filed individually at FERC last month, generally saying that their actions were justified because of prevailing market prices, existing regulations and the Mobile Sierra doctrine.</p><p>The Mobile Sierra doctrine stems from FERC rulings in 1956 that hold that the terms of a wholesale bilateral contract are presumed to be just and reasonable. The US Supreme Court has held that cost analysis is not relevant when assessing if such sales may be modified under Mobile Sierra.</p><p>Market participants said in their filings that they should recover costs beyond that of procuring power in the wholesale market, such as credit risk, and that those costs are justified in their sales. Many of the companies transacted at a published index. </p><p>TransAlta Energy Marketing said it should recover all costs, both variable and fixed, through its market-based sales, and earn a return on capital commensurate with the risk of finding power and moving it to where it is needed most. </p><p>Some WECC transactions in late August were sleeved, meaning that a buyer lacked credit with a seller, so another party on good credit terms with the seller took title to the power and resold it, often adding a small margin. </p><p>Utility Pacificorp said a heat wave, loss of generation, scarcity of non-spinning reserves, congestion on the power grid and high natural gas led to volatile power prices, along with the curtailment of exports by CAISO.</p><p>The price variances between the California grid and the rest of the region may have also played a role. Pacificorp said although CAISO market participants are not allowed to offer energy at a price above the cap, locational marginal prices can sometimes rise above the cap due to congestion and other constraints. Participants in bilateral WECC markets remain subject to the cap.</p><p class="bylines">By David Givens </p></article>
