FERC has raised the price cap in Western Electricity Coordinating Council (WECC) spot power markets from $400/MWh to $750/MWh, aligning it with the bid cap in place for the California Independent System Operator Corporation (CAISO) spot markets. FERC also ordered that the WECC cap climb to $1000/MWh on April 1, 2011, when the CAISO price cap is likewise scheduled to rise to $1000/MWh.
The WECC price cap is “soft,” meaning that market participants can sell at prices above the cap when they can justify doing so. In its order FERC declined to specify exactly what would justify a WECC supplier exceeding the soft price cap, explaining that it could not “anticipate all of the possible reasons.” In contrast, the CAISO’s bid cap is “hard” and cannot be exceeded.
FERC instituted this proceeding in May 2010 to investigate the “potential for market distortions” created by the WECC-CAISO price-cap differential of $350/MWh that was then in effect. In ordering the investigation, the Commission cited the interdependency of the two markets and its concerns that the lower cap in the WECC could reduce supply options available to WECC purchasers. In June more than twenty interested parties intervened and/or filed comments. All commenters supported aligning the two price caps, agreeing that consistency was required to avoid market distortions.
The two caps were instituted in the wake of the California Energy Crisis of 2000-2001, but have not—until now—been adjusted in tandem.