Calif ISO: Won't Change Grid Operations Based On Prices Tuesday, July 03, 2001 10:12 PM ET

NEW YORK -(Dow Jones)- The California Independent System Operator said Tuesday that it isn't declaring supply emergencies with consideration of how such declarations will influence federally ordered price controls in the western U.S. wholesale electricity market.

"I haven't seen any change in the way we are operating the grid. No decisions are being made based on price. We are only declaring Stage 1, 2 and 3 emergencies predicated on operating reserves," ISO spokeswoman Stephanie McCorkle told Dow Jones Newswires.

On both Monday and Tuesday the ISO declared a Stage 2 emergency so quickly after declaring a Stage 1, that it didn't have to recalculate the price cap that is in effect during non-emergency hours. That price cap would apply to all of the western U.S. power market in compliance with the Federal Energy Regulatory Commission's complex price rules ordered of June 19. The current price cap for non-emergency hours of $91.87 a megawatt-hour would have been cut roughly in half because it would be based on a gas price index that has fallen to $3.94 per million British Thermal Units from $9.10/mmBTU.

Earlier Tuesday, ISO market operations manager Brian Rahman said that the ISO would have a hard time buying needing supplies at a new limit of about $45/MWh. The California Department of Water Resources, which has been buying power for the state's cash poor utilities since January, had difficulty buying power Monday afternoon because the ISO didn't know immediately what the price cap would be. Hours after Monday's supply emergency ended, the ISO explained to market participants that it didn't lower the non-emergency price because it wasn't in a Stage 1 emergency without being in a Stage 2 emergency for an entire hour.

The ISO's interpretation of the FERC order left both the market and the media confused. A reporter for another news service asked the ISO why it didn't declare a Stage 1 emergency earlier since it defines a Stage 1 as "operating reserves are currently, or forecast to be, less than minimum." The ISO had changed its forecast to reflect much higher anticipated demand early Monday morning,but the Stage 1 declaration didn't come until 1:30 p.m. PDT. "You don't know the full picture on imports until later in the day," McCorkle told Dow Jones Newswires.

Gov. Gray Davis' office chastised the ISO Tuesday for not taking the opportunity to recalculate the non-emergency price cap to a lower level, according to an aide to the governor.

McCorkle and Rahman said that the grid is operated independent of such market considerations. However, the chairman of ISO's Board of Governors, Michael Kahn, is currently leading negotiations in Washington DC in an attempt to get sellers to refund $9 billion to utilities and the DWR for purchases made since May 2000. Earlier this year Gov. Davis dismissed the old board of governors, which were chosen from stakeholder groups including sellers, and replaced them with his five appointees.

-By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com

http://rd.business.com/index.asp?url=http%3A%2F%2Fwww%2Ebusiness%2Ecom%2Fdirectory%2Fenergy%5Fand%5Fenvironment%2Felectric%5Fpower%5Futilities%2Fnews%2Ffull%5Fstory%2Findex%2Easp%3Fuuid%3DAFD302E4%2D2527%2D4EDC%2D91D8%2DC5A58B8E3C55%26source%3DDow%2520Jones&z=i.m.news.i&r=7&to=860B0715-BCAC-11D4-90FF-00805FA7885A&from=775B6B3F-9E29-11D4-90FB-00805FA7885A&plid=&xr=&pcg=

-- Martin Thompson (mthom1927@aol.com), July 04, 2001