Dynegy Proposals to Limit Cost Exposure in CA Condemned

Pacific Gas & Electric has called on FERC to reject proposals that seek to give California utilities less time to pay their ballooning generation cost obligations, and would absolve sellers of penalties for not supplying power if customers can't pay their bills.

The proposals are a "unilateral attempt" by Dynegy Power Marketing Inc. to get FERC to impose "more rigorous obligations" on the financially-strapped California utilities than those permitted under existing tariff, PG&E said. The proposed actions could have "potentially disastrous consequences [for] public health, safety and welfare" in the state.

"Neither the [Cal-ISO] nor FERC have the power to impose additional payment obligations on a customer in excess of the payment obligations specified in the FERC filed rate schedule, without a filing by the ISO and notice, or without a finding by the Commission that the existing tariff provisions are unjust and unreasonable," the utility told the Commission [EL01-1-603].

Currently, there is a 75-day lag between the time sellers provide power to the Cal-ISO and the time they are paid for their services, while the Cal-PX has a 30-day payment lag. Dynegy proposes that the 30-day payment lag also apply to the Cal-ISO.

Even if utilities can't meet their payment obligations and/or comply with certain creditworthiness standards, Dynegy should be penalized if it fails to supply power to the California market, particularly during emergency situations, PG&E said. The Houston-based power market is a signatory to must-run agreements with the Cal-ISO, which require it to generate power when ordered to do so by the ISO.

Dynegy has asked FERC to confirm that sellers "should not be required to sell, directly or indirectly, to buyers that are publicly stating that bankruptcy is imminent and that they may not be able to pay their power bills." If the Commission agrees, this "could turn emergencies into catastrophes," PG&E warned.

Dynegy also appears to be seeking to "sidestep" its obligation under the emergency orders issued by Energy Secretary Bill Richardson, which requires sellers to make available excess power to California during emergencies. "The Commission has no power or jurisdiction to overrule the secretary's orders."

Dynegy argues that requiring it and other generators to supply power to the flailing California market - with no prospects for recovery of their short-run marginal costs - amounts to a "taking" of property that not only violates the Constitution, but will result in the "complete collapse of the entire supply chain."

In an emergency motion in December in which it outlined its proposals, Dynegy estimated that, based on prevailing spot gas prices, it alone could incur more than $10 million a day in short-run variable costs if it is forced to continue supplying power to California utilities with no assurance of payment.

Although Dynegy is concerned about the "potential impact" on its operations if a California utility goes bankrupt, it "cannot simply walk away from its own obligation as a public utility," PG&E said. "Should there be a bankruptcy, it is at that time that the Federal Bankruptcy Code would come into play." But until that happens, "Dynegy's assertions regarding the law that should govern and its impact on Dynegy's obligation to provide service are speculative and premature."

Susan Parker

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