FERC Rescinds Western Wholesale Electricity Price Cap
The Federal Energy Regulatory Commission has officially eliminated the WECC soft price cap that previously required cost justification for wholesale electricity prices exceeding $1,000/MWh. The cap, a legacy of the 2000-2001 Western energy crisis, was deemed no longer “just and reasonable” given the evolution of organized wholesale markets and expanded FERC monitoring authority. Western commercial buyers now face uncapped price exposure during scarcity events.
Why the Cap Existed
The Western soft price cap originated from FERC's response to the 2000-2001 California energy crisis, when market manipulation by Enron and others drove wholesale prices to extreme levels. The cap required any seller charging more than $1,000/MWh to provide cost justification, subject to potential refund liability. For two decades, this backstop provided a de facto ceiling on Western wholesale prices.
What Changed
FERC concluded that the Western market has fundamentally evolved since 2001. Key factors cited in the ruling:
- CAISO Market Maturity: California's organized market now has sophisticated bidding rules, market power mitigation, and real-time monitoring that didn't exist in 2001.
- SPP Western Expansion: The Southwest Power Pool's expansion into the West has brought RTO-level oversight to additional states.
- Enhanced FERC Authority: Post-Enron reforms gave FERC significantly expanded tools to detect and prosecute market manipulation.
- Battery Storage: With 15.7 GW of battery capacity in California alone, scarcity pricing events are naturally dampened by storage discharge.
Impact on Commercial Buyers
| Scenario | Before (Capped) | After (Uncapped) |
|---|---|---|
| Max Wholesale Price | $1,000/MWh | No Limit |
| Indexed Contract Risk | Bounded | Elevated |
| Fixed-Rate Contract Value | Moderate | High |
| Real-Time Exposure (50k kWh) | $50,000 max/hr | Unlimited |
States Affected
The WECC region covers 11 Western states plus portions of others: California, Oregon, Washington, Nevada, Arizona, Utah, Colorado, Wyoming, Montana, New Mexico, and Idaho. Any commercial customer on an indexed or real-time supply contract in these states now faces uncapped wholesale price exposure during extreme events like heat waves, wildfire-related transmission outages, or periods of low wind and solar output.
What Commercial Buyers Should Do
- Review contract structure: If you're on an indexed or real-time contract, confirm whether your supplier has internal price caps or circuit-breaker provisions.
- Consider fixed-rate hedging: The removal of the backstop makes fixed-rate supply contracts significantly more valuable as insurance against extreme events.
- Evaluate demand response: Businesses with flexible load can monetize their curtailment capability during high-price events rather than paying peak rates.
- Monitor CAISO alerts: Sign up for CAISO Flex Alert notifications to get advance warning of potential scarcity pricing events.
Assess Your Western Market Exposure
With the WECC price cap removed, understanding your contract structure and risk profile is more important than ever.