The early-September heat wave that hit the West sent wholesale power prices across the region skyrocketing, and market participants and others are now arguing before federal regulators over whether the prices were justified.
After the heat wave, about a dozen power sellers submitted "justification filings" to FERC, asking for clearance for sales made during the heat wave above a $1,000/MWh Western Electricity Coordinating Council soft price cap. They argue that energy scarcity and robust market conditions during the event justify the prices.
Sellers making justification filings to FERC for the sales include TransAlta [ER23-276], Brookfield Renewable Trading and Marketing [ER23-278], Arizona Public Service [ER23-271], Avangrid Renewables [ER23-272], Dynasty Power [ER23-305], Tucson Electric Power [ER23-309], Townsite Solar [ER23-312], Public Service Company of New Mexico [ER23-313], Calpine Energy Services [ER23-316] and El Paso Electric [ER23-340].
Protests submitted to FERC over some of the filings were made by the California PUC, Southern California Edison and Pacific Gas & Electric.
The situation is similar to August 2020, when tight supplies also pushed prices skyward in the West. FERC ended up ordering refunds for those sales in WECC that were above the Intercontinental Exchange index price (CU No. 2058). FERC came up with the price caps for WECC and the California ISO in the wake of the 2000-2001 energy crisis.
Power sellers in the earlier case argued that in unwinding the transactions, the federal government was affecting the integrity of the market and injecting uncertainty, an argument that continues to be made this time around.
TransAlta made that point in its Oct. 31 justification filing to FERC for sales made during the September heat wave. Sellers have pointed out that sales above $2,000/MWh are allowed in CAISO, but not in areas of WECC that are outside of CAISO. This creates a distorting effect, TransAlta said. Details of the prices and buyers are redacted in the filings.
"TransAlta encourages the Commission to correct course and prevent the continued deterioration and destruction of the WECC spot market," TransAlta said. "Specifically, it is critical that the Commission align its WECC soft cap policy with the CAISO's post-Order 831 offer cap, which removes the soft cap during times of scarcity. To continue to unilaterally reprice transactions in the bilateral market while permitting offers above the soft cap in CAISO and allowing settlements even above the $2,000 cap in CAISO creates incredible disparity between the markets, discriminates against parties transacting in WECC, and is unjust and unreasonable and unsupported by any rational review of the law or market fundamentals."
TransAlta said continuing to disregard the fundamentals of supply and demand in the WECC region threatens the ability of load-serving entities to source power during scarcity conditions and "treats WECC markets as second-tier to CAISO's market."
In its filing, PNM said it made sales on Sept. 6 and 7 that were in excess of the price cap, but that they were justified because "the price for each transaction reflected the prevailing market price and was indicative of the market conditions resulting from the extreme weather conditions experienced in the West during that period."
PNM noted that the Palo Verde ICE index price was $1000/MWh on Sept. 7, indicating that the sales were made at the prevailing market price. It also said it could have sold into CAISO at a higher price, and did in other instances, but that it also chose to sell outside of CAISO territory in this case and should not be penalized for doing so.
In a joint protest in the TransAlta docket, SCE and PG&E said the sales above the $1,000/MWh price cap are not justified, and that FERC should order refunds above that amount. They noted that TransAlta "carefully selected" a 90-day time frame, ending on Aug. 31, to demonstrate that there was liquidity at the Mead Hub, but that time frame does not include the actual days the sales took place.
"These are the precise circumstances that bid cap rules were meant to limit," the joint protest says. "However, the existence of this loophole means the prices at issue could be the result of market power and manipulation of the market and pricing on the actual days of the transactions (without satisfying the daily volume, daily number of transactions, and daily number of counterparties requirements on those days), thereby undermining the role of the soft offer cap rules and cost justification filings to protect customers from market abuse."
The CPUC in a Nov. 18 protest to APS' filing said the sales should be refunded, and that the seller had not sufficiently demonstrated liquidity at the hub in question.
"It is in stressed system conditions such as these, when electricity supply is dangerously scarce, that there is an acute risk that sellers are able to drive up prices through the exercise of market power—the exact circumstance in which the WECC soft price cap is needed to curb the harms associated with market power abuses," the CPUC said.
Tyson Slocum, energy program director of public-interest group Public Citizen, said he objects to the justification filings and selling above the price cap.
"All of these proceedings involve Climate Change Price Gouging," Slocum said in a private message. "Companies exploit a climate emergency (in this case, a climate change-induced heat wave) to exploit market dysfunction and engage in price gouging. And the Commission should conclude that climate change price gouging is not consistent with just and reasonable rates."
Scott Miller, executive director of the Western Power Trading Forum, in an email to Clearing Up pointed out that under FERC Order No. 831, CAISO has been allowed to have bids for generation up to $2,000/MWh with justification, which doesn't apply to the rest of WECC.
"We all know that California is a net importer at peak (as it was in both August 2000 and September 2022), so how can it be that you import resources at a lower bid cap when California resources may be getting twice as much? This not only conflicts with equity but it undermines the incentives for outside supply to show up and thus hurts reliability," Miller said.