FERC is moving to rescind the West-wide wholesale electricity price cap mechanism it instituted in 2002 in response to widespread price manipulation during the Western energy crisis of 2000/01, which resulted in rolling blackouts in California and famously led to prison sentences for leaders at energy trading company Enron. 

The commission on July 14 opened a Section 206 proceeding to examine discontinuing its policy of maintaining a “soft” price cap for short-term electricity sales in the West to prevent the exercise of market power in areas outside CAISO (EL10-56).  

Under the policy, any electricity sales exceeding the cap — currently set at $1,000/MWh — are subject to cost justification and refund upon review by FERC.  

(While the policy is referred to as the “WECC soft price cap,” WECC is not involved with it or any regional market operations.) 

“We preliminarily conclude that the requirement is no longer necessary to ensure just and reasonable rates and propose to eliminate it,” the commission wrote in the order establishing the proceeding. 

The proceeding comes a year after the D.C. Circuit Court of Appeals ruled the commission must apply the Mobile-Sierra doctrine when reconsidering a series of 2022 orders requiring electricity sellers to refund a portion of the high prices they earned during an August 2020 heat wave. (See FERC Must Apply Mobile-Sierra to Western Soft Cap Refunds, Court Finds.) 

That case dealt with the surging prices associated with tight electricity supplies stemming from soaring temperatures over Aug. 18-19, 2020, as CAISO scrambled to prevent a repeat of the rolling blackouts it was forced to order Aug. 14-15 — the first such blackouts in California in 20 years. 

During the heat wave, wholesale prices at Arizona’s Palo Verde hub on the Intercontinental Exchange (ICE) hit records of $1,515/MWh on Aug. 18 and $1,750 on Aug. 19, compared with average prices that summer of $52/MWh, according to filings Southern California Edison and Pacific Gas and Electric submitted with FERC to contest the prices. 

In 2022, FERC issued a series of decisions rejecting the justifications of sellers who sold electricity at those price levels during the event, having found that the ICE index prices reflected scarcity conditions and that the selling companies had failed to justify their premiums based on costs, as required under the soft cap framework. 

The commission also rejected the sellers’ contention that it must apply the Mobile-Sierra standard to the transactions because the contracts had been freely negotiated between the buyers and sellers and had not harmed the public interest. 

The commission held that it had the authority to enforce the soft cap through refunds without conducting a Mobile-Sierra public-interest analysis because the soft cap was part of the sellers’ filed rate — a finding the D.C. Circuit rejected when it said FERC was required to conduct such an analysis before ordering refunds. 

“Even assuming that the soft-cap order was incorporated into sellers’ tariffs and contracts, the commission did not displace the Mobile-Sierra presumption in the soft-cap order itself, and so that presumption continues to apply to the sellers’ contracts,” the court found.  

‘Substantially Different’ Market Landscape

In the July 14 order instituting the soft cap proceeding, the commission recounted the D.C. Circuit’s findings and noted that, while FERC has over time revised the soft offer cap to reflect increases in CAISO’s caps, it has never reassessed whether the framework is necessary to ensure just and reasonable rates in the West. 

The commission wrote that the region’s wholesale market landscape in 2025 is “substantially different than in 2002,” when it created the soft cap.  

“At that time, the commission sought to address the widespread effects of the Western energy crisis and establish robust, stable and competitive bulk power markets across CAISO and WECC outside of CAISO’s footprint,” it wrote. “As part of that effort, the commission recognized the interdependency of the CAISO and WECC markets and adopted the soft price cap outside of CAISO while the commission, CAISO, market participants and stakeholders pursued holistic reforms to CAISO’s organized wholesale markets.” 

Regional market changes since then “call into question the need for” the soft cap, FERC said. 

“In addition to the continued development and refinement of the CAISO market, the West now features widespread adoption of centralized real-time energy imbalance markets,” the commission wrote, referring to CAISO’s Western Energy Imbalance Market (WEIM) and SPP’s Western Energy Imbalance Service (WEIS). 

The commission also noted it has approved tariffs for two day-ahead markets expected to go live in the next two years — CAISO’s Extended Day-Ahead Market (EDAM) and SPP’s Markets+ — as well as authorizing expansion of the SPP RTO footprint into the Western Interconnection. 

“Notably, these real-time and day-ahead markets encompass transactions over the majority of the same spot markets to which the WECC soft price cap applies. These markets also include robust market monitoring and mitigation that addresses the potential exercise of market power in those constructs,” FERC said, adding that market monitoring and mitigation in the more centralized markets “also has a disciplining effect on associated bilateral markets.” 

“Given these developments, we preliminarily conclude that the WECC soft price cap is no longer needed to discipline WECC spot market sales activity,” the commission said. 

The commission also pointed out that the Energy Policy Act of 2005 has given it “more robust legal authority and monitoring capabilities to address wholesale market misconduct” and greater authority to pursue allegations of price manipulation in its jurisdictional markets than it had when it established the soft cap in 2002. 

Furthermore, the commission said it “preliminarily” concluded that the “filing burden” associated with the soft price cap “is no longer warranted, given the limited monitoring benefits that it provides.” It said the requirement “imposes costs on market participants and the commission and creates uncertainty for individual transactions while those filings are pending review at the commission.”   

“Given the developments noted above, and the D.C. Circuit’s clarification of how the currently effective soft cap operates, we question the benefit of requiring individual sellers to submit an informational filing for spot market transactions above the $1,000/MWh threshold simply to facilitate the commission’s review of those sales through the Mobile-Sierra framework,” FERC wrote.