The PUCís decision to raise the wholesale price caps to $4,500 a megawatt-hour only makes the problem worse by broadening the range of potential price swings. While the higher caps are supposed to encourage more generation, even the PUC acknowledges new plants wonít come online fast enough to meet demand this summer.
Nor is the PUCís decision to raise the price caps likely to spur new generation because banks arenít willing to finance construction amid so much volatility.
Meanwhile, the PUC already is considering another hike in the wholesale cap, doubling the limit from $4,500 to $9,000 next year. At those prices, liquidity will essentially be gone, according to the traders I spoke with.
Just hours after the PUCís vote on Thursday, the price of an August contract jumped by $20 a megawatt-hour. That prompted fears that prices could shoot even higher, essentially bringing the market to a halt, traders said.