From today's Electricity Daily re last week's FERC action:
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Commentary: Price Caps Cap Capacity, Not  Prices
"We should have learned the lesson by now. Price caps  don't cap prices. 
Price caps cap capacity. We've seen that in California this  summer, where, 
the investigation by the staff of the Federal Energy Regulatory  Commission 
demonstrates, price caps had the perverse, and predictable, effect of  
driving supply out of the state, pushing up local prices even further. The 
same  phenomena cropped up in the 1970s with oil price controls and in the 
1980s with  natural gas price controls.
FERC's actions last week on the California  electricity "marketplace 
meltdown," as Chairman Jim Hoecker put it, were about  right. The major 
slippery slope in the FERC California plan is its "price  mitigation" 
approach. It is not really a price cap, not even a "soft cap" as  advertised 
by some. Under the FERC approach, bids under $150/MWh will work as  before, 
with the highest bid setting the market clearing price. But for bids  above 
$150, a bidder would get what it bid (if dispatched), but the high bid  would 
not set the clearing price for other bidders.
So it's not a price cap.  But it's a fiddle, and bidding above the $150 level 
would trigger some "market  monitoring" requirements that would give FERC 
access to confidential company  data in order to determine whether anybody 
was cooking the books. Commissioner  Curt Hebert says he fears that having 
the prospect of FERC looking over their  shoulders, and the possibility of 
refunds in the future, would scare some  capacity out of the market. He may 
be right.
More to the point, the whole  thing may be unnecessary. The other steps FERC 
is taking are probably sufficient  to kick-start to competitive marketplace. 
Particularly salutary are ending the  mandatory buy-sell provision, enabling 
forward contracting and hedging, and  fining companies for under-scheduling.
Also welcome is FERC's order to the  California Power Exchange and the 
California Independent System Operator to shut  down their highly politicized 
stakeholder boards and replace them with  independent, business-oriented 
directors, including the institution's  management. Nothing has screwed up 
the California process more completely than  the board shenanigans, 
particularly the political food fights at the ISO board  meetings. As a 
journalist, I'm sorry to see them go. But as a businessman and a  devotee of 
good public policymaking, I say good riddance.
Indeed, FERC should  have gone farther and ordered the merger of the PX and 
the ISO. Separating the  two was another case of where California allowed 
politics to overcome sound  reason, Californicating the restructuring. Among 
other things, the separate  institutions, with separate staff and separate 
procedures, drive up transaction  costs. A much sounder model comes in PJM, 
where one-stop shopping  prevails.
But, taken together and acknowledging that FERC's California action  plan is 
only the beginning, I have to give the FERC staff and the commission  high 
marks. Unfortunately, in typical FERC fashion, they have managed to launch  a 
major undertaking during the coming holiday season. Coal in the stockings 
for  that one, folks."