Sellers: Cal-ISO Claims of Market Abuse More 'Rhetoric' Than Fact

The California Independent System Operator's emergency motion seeking to strip several major California generators of their market-based rate authority should be rejected, given that FERC already has granted many of the remedies sought by the Cal-ISO in its recent price-mitigation order, generators said. Moreover, they contend the Cal-ISO hasn't provided an iota of evidence to show that they manipulated prices for power in the California market.

By extending price-mitigation relief to the entire West, the Commission has removed any price advantage that sellers in the California market might gain by resorting to megawatt-laundering --- shipping power out-of-state and then re-importing it to avoid the mitigative controls that were established in April, the generators noted. In addition, the June 19 order established a settlement conference for the state of California and the generators to thrash out the issue of refunds on past power sales. The conference got underway in Washington D.C. last week. Lastly, they noted the order concluded that a return to cost-of-service ratemaking in California and elsewhere in the West was "unwarranted" in light of the Commission's price-mitigation efforts.

The Cal-ISO "has no foundation for seeking the same relief through its present motion," Dynegy told FERC in late June [ER99-4160]. Moreover, the Cal-ISO's charge that Dynegy abused it market-power authority is "unfounded," it contends, and "totally ignores" the "substantive steps" that Dynegy has taken to help end the power crisis in California. The Houston-based energy marketer and generator noted it has committed more than 80% of its power portfolio to a four-year contract with the state's Department of Water Resources (DWR), which purchases power on behalf of California's stricken utilities. Dynegy co-owns four generation plants in the state, with an output of 2,800 MWs.

In the emergency motion filed last month, the Cal-ISO sought to terminate the market-base rate authority of Mirant/Southern Energy, Reliant, Dynegy and Duke unless the Commission implemented West-wide, around-the-clock mitigation, which FERC has since done. The Cal-ISO also called for refunds, plus interest, of charges exceeding cost-based rates for power sales dating back to May 2000 --- an issue that FERC has addressed as well. The Cal-ISO motion joined similar actions against filed earlier against Williams and AES.

Immediately following its filing, the Cal-ISO announced that electric customers in California had been overcharged by an estimated $6.7 billion. It didn't accuse the six generators (Williams and AES included) of being directly responsible for the overcharges, but the Cal-ISO noted that the six accounted for about 90%-95% of all generation sold in the state. "The clear and intended implication...was that these six companies account for 90% to 95% of the $6.7 billion, and that by stripping [away] their market-based rates, all problems would be solved," said Dynegy.

Based on the Cal-ISO's allegations, Dynegy estimated its share of the $6.7 billion would come out to about $1.3 billion. But it noted this was at odds with a March study by the Cal-ISO, which attributed only $32.1 million in overcharges to Dynegy between May and November 2000. That amounts to just 0.5% of the Cal-ISO's estimated $6.7 billion in overcharges, and only 0.1% of California's $27 billion energy market in 2000, Dynegy said.

The Cal-ISO's "actual analysis completely undercuts its PR rhetoric," the Houston company said. Moreover, the motion to terminate market-based rate authority "is simply another episode in the ISO's unfounded campaign against the new in-state generators."

But the City and County of San Francisco contends otherwise. They believe the Cal-ISO has provided "compelling and irrefutable arguments" to justify termination of market-based rate authority for Dynegy and its suppliers in California. "There is not a shred of evidence that [Dynegy and its suppliers] can offer to refute" the charges that they exerted market power in California, the city and county said. "Certainly, [they] may claim that their shares of the California market are insufficient to permit market power. However, such claims are not plausible, given the market realities in California

Like Dynegy, Duke Energy dismissed the Cal-ISO's allegation of market manipulation as "heated rhetoric" that has no basis in fact. "The Cal-ISO does not cite a single instance of Duke Energy withholding power from the market. Indeed, despite months of highly publicized allegations and investigations by the Cal-ISO, the California Public Utilities Commission, the California Attorney General, the California Senate, not one of them has come forth with a single concrete example of withholding by Duke Energy."

Furthermore, Duke Energy "has not engaged in megawatt laundering...and the Cal-ISO provides no instance that Duke Energy engaged in such a practice," the company said. Duke Energy "is not aware that the accusers have presented any tangible evidence to support the allegations as to any market participant. The sole basis of the Cal-ISO's entire case appears to be the fallacy that if they say it enough times, it will finally come true."

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.