California generators get favorable FERC ruling

Electricity generators operating in California will not have to provide power to the California Independent System Operator (ISO) without assurance of payment anymore, under a Friday ruling by the Federal Energy Regulatory Commission. The ruling ups the stakes again in the ongoing crisis, adding to the pressure on state politicians to come up with a financial solution or chance a heightened risk of outages.


By Ann de Rouffignac
OGJ Online

HOUSTON, Apr. 9--Electricity generators operating in California will not have to provide power to the California Independent System Operator (ISO) without assurance of payment anymore, under a Friday ruling by the Federal Energy Regulatory Commission.

The ruling ups the stakes again in the ongoing crisis, adding to the pressure on state politicians to come up with a financial solution or chance a heightened risk of outages. The ISO was buying power from generators in the real time market on behalf of investor-owned utilities but not paying them.

Friday, one of its largest users, Pacific Gas & Electric Co. filed for bankruptcy reorganization, and Southern California Edison Co. is teetering on the brink of bankruptcy.

Generators, including Reliant Energy, Dynegy Inc., Duke Energy Corp., AES Corp., and Mirant Corp., were not paid for several months by the two utilities or the ISO amassing millions in past due payments. They were forced to sell power to the ISO under court order since February. That order was lifted on appeal Thursday.

Reliant also sought redress at FERC by filing a motion in late February to require the ISO to comply with an earlier FERC order that said ISO could not relax its credit provisions as a means of forcing generators to provide power during emergencies.

Friday's ruling by FERC means the ISO must provide a creditworthy purchaser for power in the real time market. But the biggest users of the real time market are Pacific Gas & Electric and Southern California Edison. The utilities rely on the real time market which is scheduled by the ISO because they don't have the money to buy power in advance.

Expect compliance
"We expect ISO to comply with the FERC order," said Tom Williams, spokesman for Duke Energy Corp. "Everybody else in the country has to. Why not in California?"

Williams would not say if Duke plans to halt deliveries to the ISO because of the favorable FERC ruling.

Reliant which fought in court and at FERC to get the tariff enforced said it will continue to sell power to the ISO, while the company negotiates new contracts with the California Department of Water Resources (DWR), which stepped in to buy power in place of the utilities.

"The burden falls to the ISO to produce a creditworthy buyer," said Richard Wheatley, spokesman for Reliant. "Something has to give."

Indeed, Southern California Edison can only self supply about one-third of its load during winter. One-third comes from qualifying facilities or QF's--independent generators under contract to the utilities--and one-third from the real time market and the DWR, said a utility spokesman.

"That's in the winter with a light load," he said. "The intent of legislation, that launched DWR into power purchasing, mandates DWR to buy the full net short."

About 3,000 Mw belonging to the QFs remains off line because of creditworthiness issues. The utilities have not made full payment for power produced by these facilities since November. Until the back payment issue is resolved and it's clear who will pay for the power in the future, the QFs have said they will remain off line.

This leaves little choice other than for Southern California Edison to rely on the ISO to procure its "net short" in real time. The ISO is working on "emergency dispatch orders" to use DWR as a creditworthy buyer, said Stephanie McCorkle, ISO spokesperson. Unless the DWR becomes the buyer for all the net short, the ISO will be in violation of FERC orders. If this is not worked out, the grid could be in even worse danger of outages.

Contact Annd@OGJonline.com

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