On May 20, 2010, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order initiating a Section 206 Proceeding to investigate the price cap in the Western Electricity Coordinating Council (“WECC”) outside of the California Independent System Operator Corporation (“CAISO”).  FERC’s inquiry is aimed at eliminating market distortions that might result from a difference in bid caps in CAISO markets and the spot market price cap in the rest of the WECC.

On April 1, 2010, under Commission Order, the energy bid cap for CAISO rose to $750/MWh and will rise to $1000/MWh on April 1, 2011, unless the Commission directs otherwise.  WECC spot market energy prices outside of CAISO are currently capped at $400/MWh. 

The Commission conducted a preliminary review of the price cap in the WECC and found that it may no longer be just and reasonable.  The Commission reiterated that California is important to trade and reliability in the West and that interdependent markets necessitate consistent caps in CAISO and the rest of the WECC.  The Commission warned that if WECC had a lower price cap, and CAISO energy prices rose above the WECC price cap, the WECC would have difficulty in the energy market. 

The Commission stated in its order that the $400/MWh cap should be raised to a $750/MWh soft cap, which is consistent with the CAISO bid cap as of April 1, 2010.  This would eliminate the disparity between CAISO’s clearing-price markets and the WECC’s bilateral markets.  The Commission warned that market distortion could occur if there is a difference in price cap and that the cap should increase to $750/MWh for all spot market sales in the WECC outside CAISO.  The Commission also proposes to increase this cap to $1000/MWh on April 1, 2011 for spot market sales in the WECC outside the CAISO to match the $1000/MWh cap on April 1, 2011 for CAISO.  Additionally, the Commission set a refund effective date as the date of publication in the Federal Register of the Commission’s notice of its investigation in this proceeding.

Comments on the Commission’s investigation are due 30 days from the Commission’s order.

The Commission’s Order can be found at www.ferc.gov under Docket No. EL10-56-000.