Cambridge Energy  Research  sees FERC's order as bold but still insufficient  
to solve  Calif's  complex problems in electricity.  FERC  does  show an 
important  change in direction to be more  active. Calif. clearly has  gone 
wrong.
FERC  did not confirm that  market power  exists though.  FERC alone cannot  
fix the  fundamental supply/demand
imblance  problem at the seat of  Calif's  power price  spikes now.  FERC  
is  taking  a scattershot approach however
to remedies.  Its  creating more problems for  Merchant  generators  
however.   Cera  sees  FERC  at the start of a series of changes  to effect   
the  Calif. market  for some time to come.  Cambridge  sees FERC's  5  main  
thrusts:

1.  FERC sees Calif. oversight of the ISO Board as ineffective.  Too many 
price  caps changes inside one month, too many quick  switches in policy.  
This summer  the ISO operators were actually  doing the  CPUCs  job when  the 
ISO was  operating to  protect the core  customers.

2.  FERC stripped  Calif ISO of price  cap setting   power..but  setting
  it  at  $150 mwh for a  soft  cap has problems too because its  too low 
(discourages  new plants)  and  a hassle for those  who want to  offer above 
it..not clear price signals.  

3.  Its  good that now IOUs  can  buy/sell power outside the PX giving more 
market options.  But  FERC won't  mandate utilities to hedge, but indeed  
they  need  to use more of these types of tools beyond  the old spot market  
addiction.
CPUC  does not yet know  what a good  portfolio  for power should look like.

4.  FERC  set  market penalties for underscheduling  and the new ISO board is 
trying  to  break up the balkanized  way
power used to be  bought and sold by Calif  utilities.

5.  Calif. congestion management  reform pace is too slow.  Calif.  needs  
real nodal pricing.

Will the  $150 soft  cap retard new plants?  Has a chilling effect because 
there is no floor  and the  ceiling is  low.
There  are  61 GW proposed in the West now  and  21 GW  are needed.

Will  CPUC introduce  a capacity charge  to promote new plants?  Now the ISO  
in  its actions  can enter into supply contracts  for  ' new '  capacity   
for   3 years  with a    $125 kwh payment plus what it pays in  the price  to 
clear  the energy market.   People will try to reclassifiy  'old' plants  as  
'new' plants  to try to make the cut.

Will it make  more  sense for  plants to be   outside  Calif. to compete  ?  
It makes things less  onerous  on the regulataory  front  to site outside 
Calif. then inside.  The areas   outside  Calif. see Calif.  effects 
changing  their own markets.

FERC  saw links  with power   price  caps  and efforts to move power from  
COB  to Palo Verde.  If you move volumes
away from the day ahead  market  more into bilaterals this will weaken the 
price  cap effects.  We  should not forget that it was  due to PURPA  high 
priced power  under long term contracts that  Calif.  got themselves into 
many of these problems in the first place. 

CPUC  wants to create  managed competition  and tinker between new and old 
capacity and these  intrusions  blue the market signals.  

Why  are  prices  still so high in this  shoulder season?  Generation 
shortfall is the real reason.  Plus Gas prices  are high and its the marginal 
fuel, nuclear outages   still exist  and seasonal hydro is low   and NOX   
emissions    ($45  pound)  costs  for clean up  add to price pressure.  
Calif. demand for power    grew   3 percent per year  and  supply  grew   1 
percent per year  so  shortage  was inevitable.  CPUC   never  saw it.  It 
is  still not clear these new FERC  remedies  will  fix this  gap.

Transmission constraints contribute  to the supply crisis  but  the 
generation shortfall is bigger problem.  Low cap  is of concern, even if it 
is a soft  cap.  At  PJM    the  cap is  $1000   and they can exceed their 
cap in PJM.

In  Calif  there is a  case  where the  stranded costs worked off fast, and 
incentives to add new plants were missing as power prices  were low until 
demand exceed supply  . Calif  is a market  in short supply  and  next summer 
the problems will still be here.

If the older plants now  have  higher costs due to NOX  and heat  rates, this 
should signal new plants  to come forward  and run more  and get  better 
margins, esp in So. Calif.  But  in the future  the new  gas on gas 
competition plants  will find it harder t o compete  and these  plants will  
need   20 years  or so to pay  out..so the  risk to thin margins is real for 
merchant  plant   developers.