California Power Grid Proposes New Plan

The electricity grid operator in California approved a plan to impose stiffer penalties against energy companies that try to manipulate the power prices in the state.

The California Independent System Operator (ISO), which ran the state's electricity market during the power crisis of 2000-01, urged federal energy regulators to quickly approve the plan.

The ISO has clashed with the Federal Energy Regulatory Commission (FERC) over how the Western wholesale electricity market should be reformed.

"We urge the (FERC) to approve this proposal as quickly as possible," said Michael Kahn, chairman of the ISO board of directors, which approved the plan.

Companies that violate the proposed rules would be punished with fines of double the amount of their unfair profits, according to the California ISO.

The California ISO's proposed rules are designed to prevent a repeat of trading schemes like those carried out by former top Enron Corp. ((ENRNQ.PK)) trader Timothy Belden. He pleaded guilty in October to conspiring to inflate California electricity prices with schemes nicknamed "Death Star" and "Fat Boy" on the grid controlled by the California ISO.

The schemes allowed Enron and possibly others to allegedly manipulate power prices as blackouts gripped the state.

But the new rules do not go far enough to counter future abuses, said energy consultant Robert McCullough, a long-time critic of the California ISO.

"The rules do a good job of catching up with where Timothy Belden was two years ago," he said.

The California grid said it has already prohibited many Enron practices, and proposed to change its tariff to bar others that allowed the firm to create false congestion on the state's power lines and collect payments for relieving the fictitious problem.

"We are making a strong case that the ISO needs the authority to identify misconduct and swiftly penalize it where appropriate," Kahn said.

The new rules would bar such manipulation, and set explicit penalties and create coordination with enforcement agencies like the FERC, attorney general and U.S. Justice Department.

The grid operator also proposed a formal means of alerting the FERC to possible manipulation activities.

The ISO proposed penalties as high as $110,000 or $1,000 per megawatt-hour for generation owners that fail to comply with the ISO's scheduling orders to start their units in the event of a sudden shortage.

The ISO would also impose monetary penalties of up to $10,000 per event for companies that provide false outage information.

The FERC ordered the ISO to redesign its market rules, and in August sued the ISO to force it to change its board of directors.