Dynegy Accuses Cal-ISO of Price Discrimination

The California Independent System Operator (Cal-ISO) is violating its tariff and discriminating against electric generators with in-state facilities by paying them far less for emergency power than it does for similar purchases made from marketers and generators located outside of California, a major in-state generator contends.

While the Cal-ISO has a number of options in which to acquire imbalance energy or ancillary services when supplies are low, it "has...latched onto the cheapest option" allowed under the out-of-market (OOM) provisions of its tariff, which subjects in-state generators to prices that aren't enough to compensate them for their short-run marginal costs, Dynegy Power Marketing Inc. told FERC in a Section 206 complaint filed Friday.

On Dec. 31 in-state generators, which are tied to the ISO grid and thus are subject to the OOM provisions, will be required to select "one of two confiscatory rates" to be paid by the Cal-ISO for OOM dispatch calls, Dynegy said. One rate will be based on the market-clearing price, which effective Jan.1 will be limited to $150/MWh. Such a rate will make it nearly impossible for participating in-state generators to recover the high costs for natural gas at the California border and the current NOx emission expenses, Dynegy said [EL01-23]. A second OOM pricing method being offered also "provides no assurance that short-run marginal costs will be recovered."

In its complaint, Dynegy proposes that participating in-state generators be paid a compensatory rate for their OOM energy dispatches, sufficient to cover their short-run marginal costs plus a 15% "adder" for fixed costs. In addition, FERC should order the Cal-ISO to file by no later than March 1, 2001 the ISO's long-promised proposal to create a third payment option for OOM-required energy deliveries. "This option should permit a generator subject to OOM calls to elect to be paid its day-ahead, pre-submitted bid or call price," Dynegy noted.

It also accused the Cal-ISO of "repeated and intentional misuse" of its tariff requirement to "exercise good utility practice by negotiating with generators" over the prices of energy supplies. The Cal-ISO "refuses to do [this] with generators" who are linked to the California grid, according to Dynegy.

"While the PGA [Participating Generator Agreement] provides a basis to compel on-system generators to supply energy as a condition of their attachment to the ISO grid, the PGA does not provide a basis to discriminate in terms of price or terms such as minimum takes or hours of running," Dynegy argued.

Dynegy claims the Cal-ISO has "repeatedly called" on it to supply energy when its "only plausible motivation" was to "avoid paying a higher price demanded from other available suppliers." As a result of this practice, which Dynegy says clearly violates the Cal-ISO tariff, the company has incurred "very substantial out-of-pocket losses" of more than $2 million since Nov. 1.

"The lost opportunity costs associated with OOM calls cannot be made up. There is absolutely no basis for asking [a] participating generator to run at a loss, and there is absolutely no will among ISO stakeholders to change the tariff in order to pay generators a compensatory rate for services required by the ISO," it noted.

For this reason, "expeditious relief is required to prevent substantial economic harm to [Dynegy] and to avoid the creation of market conditions adverse to the long-term interests of California electric energy consumers."

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