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PG&E: Calpine Affiliates Violated FERC Market Behavior Rules

Pacific Gas and Electric Co. (PG&E) last Tuesday used a complaint filed with FERC to allege violations of the Commission's market behavior rules by two generator affiliates of bankrupt Calpine Corp. -- Delta Energy Center LLC and Los Esteros Critical Energy Facility LLC.

PG&E alleges that each generator "provided false or misleading information" to the California Independent System Operator Corporation (CAISO) by submitting bids to CAISO offering prices for service during 2006 under reliability must run (RMR) contracts, as part of the process of seeking an extension of the annual term of each contract, "and then, after the CAISO had extended the term of both RMR agreements, unilaterally filing with the Commission and obtaining, subject to hearing and refund, rates for 2006 over 300% higher than its bid prices." The actions violated rule 3 of the market behavior rules, PG&E said.

Each generator "provided additional false or misleading information" to CAISO by making its bid price an annual fixed reliability charge (AFRC), "a rate design that precludes the use of even higher 'Condition 2' rates under an RMR agreement, but later unilaterally filing not an AFRC but a different rate design that makes possible the use of Condition 2 rates," the utility told FERC.

Under CAISO's open access transmission tariff, PG&E is obligated to pay the costs incurred by CAISO under the Calpine RMR agreements. "As a result, PG&E and its customers have been and continue to be injured by Calpine's conduct, which has enabled Calpine to bill the CAISO and ultimately PG&E for at least $5 million per month (which can increase to $11 million per month under Condition 2) more than the prices bid by Calpine," PG&E asserted.

The utility also said that Calpine's "tactics have rendered the CAISO's Local Area Reliability Services (LARS) process -- the process by which the CAISO evaluates the bids and availability of resources capable of addressing local transmission constraints -- largely meaningless as a means to select the least-cost qualified resources."

In order to remedy these alleged violations "and to deter other market participants from future acts that harm the LARS process," PG&E said it is seeking to prevent Calpine "from benefiting from its violation of the market behavior rules."

Specifically, PG&E is seeking a reduction in the rates charged by Calpine effective Jan. 1, 2006, through at least Dec. 31, 2006, the period covered by the 2006 LARS process, to rates no higher than the amounts Calpine bid for the extension of its RMR agreements, in place of its unilaterally filed rates.

"Similarly, because Calpine could not change from Condition 1 to Condition 2 under its RMR agreements under the terms of its July 2005 bid to the CAISO, PG&E also seeks a prohibition on Calpine changing to Condition 2 rates during 2006, a remedy that also will avoid excessive and unlawful rates."

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