FERC Offers Additional Guidance On CA Mitigation Order

Seeking to flesh out several key points of a sweeping market monitoring and mitigation plan for California's ailing energy markets, FERC recently said that it expects California's Independent System Operator (Cal-ISO) to ensure the presence of a creditworthy buyer for all transactions made with any generator that offers power in compliance with a must-offer requirement included in the monitoring and mitigation plan.

FERC in April voted out a controversial market monitoring and mitigation plan that seeks to rein in wholesale power prices in California (see NGI, April 30). In an order issued May 25, the Commission attempted to clarify several critical issues prior to the mitigation plan's becoming effective May 29.

In the order, FERC notes that it has previously ruled that generators are entitled to assurances of payment for all energy they provide through the Cal-ISO to Pacific Gas & Electric and Southern California Edison. These orders cover all third-party generators for all transactions through the ISO, the Commission emphasized. "Therefore, as of May 29, 2001, we expect the ISO to ensure the presence of a creditworthy buyer for all transactions made with all generators who offer power in compliance with the must-offer requirement in the Mitigation Plan," the order states.

FERC's order also addresses the treatment of generators that have not supplied heat and emission rates. Cal-ISO in May made a filing at FERC reporting on its progress toward implementing the Commission's monitoring and mitigation plan and requesting guidance on various aspects of its implementation. In the status report, the ISO noted that it had issued two market notices providing a uniform format for sellers to submit heat and emission rates, but had yet to receive this information from 10 conventional, gas-fired generating resources with 260 MW of installed capacity and 102 gas-fired qualifying facility (QF) resources representing 4,230 MW of capacity. In addition, 12 gas-fired QFs representing 838 MW of capacity have explicitly refused to supply the requisite information, Cal-ISO's status report goes on to state.

The Cal-ISO proposed procedures for sellers that have not provided the required data and asked FERC to confirm that such treatment is appropriate. Specifically, for the generating units that have not provided the requisite data or whose data Cal-ISO believes to be inadequate, the ISO said it would use data from a viable alternative source. If an alternative source of data does not exist and the generating unit continues to refuse to supply the requisite information, the ISO will treat the non-compliant generators as price-takers, with Cal-ISO assuming a $0/MWh bid for all available capacity from these units. These generators, if dispatched, will be paid the market clearing price.

FERC said it would accept the ISO's proposal for generating units within California, including non-public utility generating units, that have not supplied heat and emission rates in compliance with the monitoring and mitigation order. To the extent that a non-compliant seller does not wish to be treated as a price-taker, the ISO's approach will provide such entities with an incentive to provide the ISO and the Commission with the requisite data, the order added.

FERC's order also provides guidance on price mitigation in Cal-ISO's spot markets. According to the Commission, Cal-ISO has interpreted its previous mitigation order as imposing price mitigation measures on sales in its imbalance energy market and eliminating existing price mitigation measures in all other markets. Thus, the ISO states that it does not intend to apply any price mitigation to its ancillary services spot markets or adjustment bids.

But the Commission said Cal-ISO erred in its interpretation of FERC's mitigation order. The Commission said that although the mitigation order did not explicitly address the issue of price mitigation in any market other than that for imbalance energy, the order nonetheless noted that "this proceeding was established to address whether a price mitigation plan was needed to replace the $150/MWh breakpoint methodology." FERC, noting that the $150/MWh breakpoint methodology applied to the ISO's ancillary services markets, said that Cal-ISO must replace the $150/MWh breakpoint methodology in those markets with the superseding methodology laid out in the Commission's mitigation order.

In addition, FERC clarified that April's order did not replace the ISO's current methodology for mitigating adjustment bid prices. With respect to calculating the market clearing price for ancillary services, FERC directed Cal-ISO to use each relevant average hourly mitigated imbalance energy price.

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