California ISO asks FERC for power cost investigation

The California Independent System Operator (ISO) concluded in a report released Thursday there is enough evidence of generator overcharging for electricity to warrant a full investigation and hearing by federal regulators. In a filing with the Federal Energy Regulator Commission (FERC), the ISO asked for more detailed cost data from generators that could justify bids above the FERC imposed �soft caps� of $250/Mw-hr in December and $150/Mw-hr in January.


Ann de Rouffignac
OGJ Online

HOUSTON, Mar. 1�The California Independent System Operator (ISO) concluded in a report released Thursday there is enough evidence of generator overcharging for electricity to warrant a full investigation and hearing by federal regulators.

In a filing with the Federal Energy Regulator Commission (FERC), the ISO asked for more detailed cost data from generators that could justify bids above the FERC imposed �soft caps� of $250/Mw-hr in December and $150/Mw-hr in January. The ISO also requested bids above the cap be subject to review and refund for longer than 60 days.

�We are seeing the exercise of market power and FERC�s soft cap is not effective in controlling this,� said Anjali Sheffrin, director of ISO market analysis, in a conference call. �We could only make preliminary estimates based on publicly available data. We want cost data, heat rate, fuel costs, emissions cost, and so on.�

The ISO investigation revealed two-thirds of the real-time market bids were at prices over the soft cap and were therefore subject to FERC reporting rules. In December, $400 million worth of the bids for power were over the $250 cap, and in January the figure was $350 million over the $150 cap.

The ISO then took a look at bids above the cap and found in December that $240 million of the $400 million was above what the ISO determined to be �cost justified,� and in January $315 million out of $350 million was also out of line.

�The information is compelling enough to warrant further examination,� said Steve Greenleaf, ISO�s director of regulatory affairs.

December 2000 and January 2001 energy and ancillary costs totaled $11 billion, compared to $7.43 billion for the entire year of 1999, according to the study. On a dollar per megawatt basis, 1999 costs were $20-$50/Mw-hr/month, compared to December 2002 and January 2001 when they averaged $294 and $265, respectively.

The ISO cost analysis for gas-fired plants within the ISO control area were estimated using heat rates, spot market gas prices, estimated NOx emission rates, and emission credit costs. For electricity imports from out-of-state, costs were estimated using daily spot market gas prices and an average 12,000 btu/kw-hr heat rate.

The report concluded sellers were able to establish prices at levels substantially above what could be considered just and reasonable based on supply costs, current market conditions, and revenues earned over the last year as a result of �uncompetitive� conditions in California�s marketplace.

�We are not saying that all generators are overcharging. We just need more cost justification to make sure these costs are reasonable,� said Sheffrin.

Generators were required by a Dec. 15 FERC order to submit detailed cost data on bids above the soft cap.

Reliant Energy has been complying with that request as required, said Richard Wheatley, spokesman for Reliant Energy Inc. A Reliant unit owns almost 4,000 Mw of generation in California. But he said the company would not submit cost data to California agencies.

�We haven�t submitted the data because we haven�t received adequate assurances that the material will be held under terms of confidentiality,� said Wheatley. He said FERC�s order does not require the company to submit detailed cost data to California.

ISO officials admitted their analysis of the bids excludes any risk premium. Industry experts suggested a risk premium is justified because the utilities have defaulted on billions of dollars in power payments.

�All sales need to be justified whether just and reasonable. It�s up to FERC to decide what is just and reasonable,� said Sheffrin.

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