Generators take California complaint to FERC

Ann de Rouffignac
OGJ Online

Worried about the price caps imposed by the California Independent System Operator, three energy merchants have filed a complaint with the Federal Energy Regulatory Commission concerning potential lost revenue, should the ISO interrupt power scheduled to leave the state.

Merchant power units of Reliant Energy Inc., Dynegy Inc., and Southern Co. have frequently expressed concern to the California ISO about the ability of the to ISO to curtail out-of-state exports under its emergency powers. But the complaints have so far fallen on deaf ears.

These companies have power plants within the state of California and sell power on the wholesale market to the highest bidder. From time to time that bidder is in another state. They want FERC to require the ISO to compensate generators for actual damages and lost opportunity costs in the event the ISO curtails scheduled energy exports.

The companies argue limiting payments to $250/Mw-hr, the current price cap, is �unjust and unreasonable.�

The complaint also requests expedited action because of repeated attempts since early summer to resolve the issue at the California ISO have not been successful. The issue was finally brought before the ISO�s board for a vote at the Aug. 1 meeting. But the compensation proposal was �unanimously� voted down, says John Stout, vice-president for asset commercialization, Reliant Energy.

Should out-of-state firm power transactions be curtailed, the companies say they will be exposed to potential large financial losses.

�This uncertainty has a chilling effect on interstate trading and ultimately on competition in the power markets,� according to the filing.

The California ISO has the right to curtail firm exports in a Stage 3 emergency (when voltage problems, overloads, or stability problems threaten the integrity of parts or the entire grid). But the ISO�s imposition of $250/Mw-hr price caps will actually create the emergency conditions that could require a curtailment of exports, the companies argue in the filing.

Because prices are capped, these merchants will logically seek to sell more power out of state where no price caps exist, thus creating supply shortages within the state, they argue. The ISO�s own actions therefore will trigger the emergencies, the companies allege.

Indeed, for weeks at a time the California ISO has been forced to declare Stage 2 power emergencies as reserves fell below 5%. With one exception in mid-June, it has skated by up to now without a Stage 3 emergency which calls for rolling blackouts to keep the system from going down.

The California system has internal generation of about 39,950 Mw and the peak is often at 45,000 Mw. California is a net importer of power. But soon it may turn into a net exporter if, thanks to the price caps, prices are more attractive out of state, according to the filing.

The companies also argue that unless the ISO agrees to compensate merchants for revenue lost during a curtailment, previous FERC orders will be nullified. Earlier, FERC ruled the California ISO cannot require market participants to provide capacity at capped prices in times of scarcity.

�In the commission�s view, price caps are permissible because sellers have no obligation to sell but can go to other markets,� the filing states. �If the ISO is unable to elicit sufficient supplies at or below its announced purchase price ceiling (because generators are free to sell elsewhere if they choose) it will have to raise its purchase price to the level necessary to meet its needs.�

If the ISO can recall energy and pay only the capped price, that �eviscerates� FERC�s orders, the generators argue.