The California Independent System Operator (Cal-ISO) isviolating its tariff and discriminating against electric generatorswith in-state facilities by paying them far less for emergencypower than it does for similar purchases made from marketers andgenerators located outside of California, a major in-stategenerator contends.

While the Cal-ISO has a number of options in which to acquireimbalance energy or ancillary services when supplies are low, it”has…latched onto the cheapest option” allowed under theout-of-market (OOM) provisions of its tariff, which subjectsin-state generators to prices that aren’t enough to compensate themfor 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 gridand thus are subject to the OOM provisions, will be required toselect “one of two confiscatory rates” to be paid by the Cal-ISOfor OOM dispatch calls, Dynegy said. One rate will be based on themarket-clearing price, which effective Jan.1 will be limited to$150/MWh. Such a rate will make it nearly impossible forparticipating in-state generators to recover the high costs fornatural gas at the California border and the current NOx emissionexpenses, Dynegy said [EL01-23]. A second OOM pricing method beingoffered also “provides no assurance that short-run marginal costswill be recovered.”

In its complaint, Dynegy proposes that participating in-stategenerators be paid a compensatory rate for their OOM energydispatches, sufficient to cover their short-run marginal costs plusa 15% “adder” for fixed costs. In addition, FERC should order theCal-ISO to file by no later than March 1, 2001 the ISO’slong-promised proposal to create a third payment option forOOM-required energy deliveries. “This option should permit agenerator 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 bynegotiating with generators” over the prices of energy supplies.The Cal-ISO “refuses to do [this] with generators” who are linkedto the California grid, according to Dynegy.

“While the PGA [Participating Generator Agreement] provides abasis to compel on-system generators to supply energy as acondition of their attachment to the ISO grid, the PGA does notprovide a basis to discriminate in terms of price or terms such asminimum takes or hours of running,” Dynegy argued.

Dynegy claims the Cal-ISO has “repeatedly called” on it tosupply energy when its “only plausible motivation” was to “avoidpaying a higher price demanded from other available suppliers.” Asa result of this practice, which Dynegy says clearly violates theCal-ISO tariff, the company has incurred “very substantialout-of-pocket losses” of more than $2 million since Nov. 1.

“The lost opportunity costs associated with OOM calls cannot bemade up. There is absolutely no basis for asking [a] participatinggenerator to run at a loss, and there is absolutely no will amongISO stakeholders to change the tariff in order to pay generators acompensatory rate for services required by the ISO,” it noted.

For this reason, “expeditious relief is required to preventsubstantial economic harm to [Dynegy] and to avoid the creation ofmarket conditions adverse to the long-term interests of Californiaelectric energy consumers.”

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