Frontlines

Price Cap Follies

Beware the transmission operator that is truly "independent."

By now you've read all about it: in the dead of night, in a July hotter than hot, how the board of governors of the California Independent System Operator failed by one vote to tighten controls over state-run electricity markets for various back-up power services (real-time ancillary services and intra-zonal congestion management) by forcing the maximum price down to $250 per megawatt-hour, just eight days after it had lowered the price cap from $750 to $500 in what it called emergency action.

But you may have missed the story behind the story--how the ISO proper had opposed the price cap resolutions offered by the various private citizen stakeholders who sit on the board to ensure that the ISO will remain independent of utility control.

A few days after the failed vote, I talked with ISO spokesman Patrick Dorinson, who asked me to "please get the word out" that the governing board makes its own decisions, independent from the ISO proper, and that the two don't always see eye to eye. He sent me a copy of an internal memo that the ISO had circulated to warn that a tougher price cap would make customers worse off, not better.

"Lowering the price caps will increase out-of-market activity necessary by the ISO to maintain reliability within its control area.