California ISO wants generators market-based authority revoked

California's grid operator Friday asked federal regulators to revoke market-based pricing authority for four of the state's largest independent power producers and institute cost-based rates instead. Charles Robinson, general counsel for the California Independent System Operator, said the grid manager also asked regulators to force Duke, Mirant, Dynegy, Reliant Energy to 'disgorge' profits over and above a cost-of-service return back to May 2000.


By the OGJ Online Staff

HOUSTON, June 8 -- California's grid operator Friday asked federal regulators to revoke market-based pricing authority for four of the state's largest independent power producers and institute cost-based rates instead.

Charles Robinson, general counsel for the California Independent System Operator, said the grid manager also asked the Federal Energy Regulatory Commission to force Duke Energy Corp., Charlotte, NC, Mirant Corp., Atlanta, and Dynegy Inc. and Reliant Energy Inc., both of Houston, to "disgorge" profits over and above a cost-of-service return back to May 2000.

Market-based rates reflect the value of electricity in an open market. Cost-based rates for wholesale power would be calculated based on the cost of producing the power, plus a regulated rate of return for the generator. FERC requires generating companies to reapply for the authority to charge market-based rates after 3 years. The ISO filings are in anticipation of Duke, Dynegy, Reliant, and Mirant filing to renew the market-based authority in the near future.

"Three years ago FERC granted the authority to charge market-based rates to these companies in the belief that it would foster just and reasonable rates in California," Robinson said. "Clearly wholesale rates in the state have not been just and reasonable and the ISO wants FERC to live up to its mandate and revoke the market-based rate authority."

FERC instituted cost-based pricing during electric emergencies in an Apr. 26 order. The grid operator and the ISO said the order didn't go far enough to keep the lid on wholesale prices in the state. "There are loopholes in FERC's current mitigation plan that could lead to charging unreasonably high prices," Robinson said.

Among the loopholes the ISO's wants closed in the ability of generators to schedule power out-of-state in the forward market and then returned to the state in the real-time market, thus avoiding FERC's price controls Robinson said, a process known as megawatt "laundering."

Nothing new
Representatives of Dynegy and Reliant claimed the ISO complaint is nothing new. "It's a rehash of FERC Apr. 26 order," said Dynegy spokesperson John Sousa. He said the ISO's call for a return to cost-based rates had already been taken up by FERC and rejected. But, he said, Dynegy will respond to the ISO filing by June 22.

Similarly, Reliant spokesman Richard Wheatley said much of grid operator's complaint was addressed in the Apr. 26 order and doesn't warrant "emergency relief." Reliant earlier in the week asked FERC to rescind or modify the April order, arguing it didn't reflect a true market for natural gas. Further, Wheatley said, it holds down prices exactly at the time they should be rising to deter demand.

Duke spokesman Tom Williams said the company is reviewing the filing and will respond early next week. The generators said they haven't engaged in megawatt laundering. "We stand by our record," Wheatley said.

Williams said market forces "are very much alive" in California evidenced by the fact June 1 on peak power cost $150/Mw-hr, compared to $330/Mw-hr in April. Market observers attributed the decline in prices to snow melt that boosted hydro supplies, the return of plant to service that were down for maintenance, conservation, and use of long-term contracts compared to the state's previous dependence on the spot market.

Robinson said the ISO asked FERC to act by June 28. The ISO's action is an expansion of a similar filing a week ago that also seeks to block Williams, Tulsa, Okla. and AES Corp., Arlington, Va., from renewing their market-based authority.

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