California slowly emerging from energy quagmire.

Ever since electricity emergencies, rolling blackouts, soaring wholesale prices, and utility bankruptcies sent California's energy markets into a tailspin, state and federal agencies have been trying to return the system to a straight and level path.

Recent events suggest that progress is being made, but it would be a bold prognosticator who suggested that the crisis would soon be entirely over.

For starters, the Federal Energy Regulatory Commission's (FERC) market power mitigation that took effect in June 2001 expired October 30. At that time the California Independent System Operator (CA ISO) began operation under Phase lA of a new market design. The mainstay of the new rules is the computerized Automatic Mitigation Procedure (AMP) that automatically lowers bids offered into the CA ISO markets that are too high.

AMP works by identifying bids that are inconsistent with recent bidding history and current market prices, CA ISO explains. Bids are subjected to a three-part test, and if they fail, they are lowered to a reasonable price determined for each generating unit by an independent third party. The "reference price" is based on the historical bidding behavior for each specific generating unit.

Another part of the market design is a "damage control" price cap, which FERC has set as a "soft cap" at $250. That means that if bids exceed $250, those bids are subject to price justification and possible refunds if justification criteria are not met.

The next major phase, 1B. includes comprehensive rules about the consequences of unacceptable market behavior and provides for penalties. CA ISO is working toward implementing 1B in 2003.

Meanwhile, Federal regulators on October 24 gave CA ISO until October 29 to file details of how the grid operator will launch a day ahead wholesale electricity market by January, granting a request for a few extra days to file the documents. FERC also ordered the grid operator to make changes to its hour-ahead power schedule.