California ISO may lose power price cap authority


SAN FRANCISCO, Oct 30 (Reuters) - The authority of California's power grid 
operator to cap prices may be threatened by its approval of a controversial 
plan last week, the chairman of its board of governors said on Monday.

Last week the California Independent System Operator's board of governors 
narrowly approved a plan for variable price caps which are adjusted to 
reflect the amount of demand and the level of natural gas prices.

"I think the board's vote on Thursday jeopardizes the ISO's potential future 
authority to set price caps," Jan Smutny-Jones said in an interview.

Smutny-Jones, who opposed the plan along with the ISO's chief executive Terry 
Winter, said the cap formula was ill conceived and would add to market 
instability.

"If the ISO staff had put something forward like this they would have been 
hung," he said.

The plan was proposed by Mike Florio of consumer group The Utilities Reform 
Network (TURN) and backed by representatives from investor owned and 
municipal utilities.

The Federal Energy Regulatory Commission authorizes the ISO to set price caps 
but that authority is set to expire on November 15.

Smutny-Jones said FERC may take a dim view of such decisions, threatening its 
renewal of the ISO's cap authority.

FERC is due to issue a report on California's troubled power market on Nov. 1 
and may come out with some orders aimed at rectifying some of the problems on 
Nov. 9.

Prices skyrocketed this summer as loads continued to grow aided by a strong 
economy and demand struggled to keep pace. There have been almost no power 
plants built in the state during the past decade.

Smutny-Jones, who is also executive director of the Independent Energy 
Producers Association, said he believes the FERC report would clear 
generators from any wrongdoing. Some have claimed there was price gouging by 
generators during this summer's price spikes.

"I think the idea that this market was raided by Texas vikings is a silly 
notion," he said, referring to the participation by some Houston-based power 
companies in California this year.

Smutny-Jones also expressed concern about a letter received by the ISO from 
state regulator, the California Public Utilites Commission, last week.

The ISO has been seeking to contract for temporary power generators to locate 
in California in a bid to ease a potential power crunch next summer. It 
received bids for 3,800 megawatts of which it entered negotiations to buy 
about 2,000 MW.

Last week the CPUC called on the ISO to not sign those contracts until other 
options had been considered. The ISO is meeting later Monday to consider its 
response.

"I am troubled by the letter we got from the PUC because I don't think we 
have any time to wait. I will encourage (ISO) management to go forward," he 
said.

Smutny-Jones said that the main solution to high prices in the state would be 
for the utilities to sign long-term contracts.

Prices for five-year contracts are currently much cheaper than those in the 
spot market as many expect the current shortage may be much less actute after 
2002 when many new power plants are scheduled to come on line.

He was particularly critical of Sempra Energy unit San Diego Gas and 
Electric's decision not to sign any such deals, at least until after the FERC 
report.

"I think that is totally irresponsible. Sempra's strategy (of not signing 
such contracts) has been a disaster for the people of San Diego," he said.

Smutny-Jones was in San Francisco attending Edison Electric Institute's 
annual finance conference.