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CAISO Asks FERC to Reject Generators' Gas Cost Help

In a filing earlier this month, the California Independent System Operator (CAISO) asked FERC to deny a request by independent power generators for relief from spiked winter gas prices that they had requested two days before (see Daily GPI, March 7).

In a protest filing, CAISO asked the Federal Energy Regulatory Commission to reject the request by a group of generators, including NRG Energy, Dynegy Inc. and others, for a waiver of the state grid operator's rules on both procedural and substantive bases. What the generators are seeking "far exceeds what may be granted in a tariff waiver," the state grid operator's protest argued.

At issue are unrecoverable gas procurement and disposal costs under the CAISO's existing FERC-authorized tariff provisions.

The generators, called Indicated CAISO suppliers in the filings, did acknowledge that CAISO has recognized and reacted to the gas price spikes with a Feb. 21 technical bulletin, stating the grid operator's intent to seek tariff waivers "to address atypical and significant increases in natural gas prices." The generators, however, view the CAISO waiver request as inadequate because it doesn't solve a time lag problem.

Besides allegedly failing to meet FERC's waiver standards, the suppliers' request could have adverse market consequences, according to CAISO, which said it could hurt the California power market's efficiency and create gaming opportunities for market participants.

"In addition, recovering imbalance penalties [recovery of broader-than-normally-allowed costs] from the CAISO could adversely impact the functioning of the regulated gas system," CAISO said.

Ultimately, the grid operator contends that "the short-term issues associated with 2014 winter season gas price volatility are best addressed through a limited tariff waiver such as that proposed by the CAISO."

CAISO is advocating the use of a stakeholder process to address the generators' concerns, and it has proposed starting that process in April.

CAISO conceded in the FERC filing that from last December through February the state's power markets were subjected to "uncharacteristically higher and more volatile gas prices than normal." It cited the example of last Feb. 5 and 6 when the gas price range shot up from $7.63-8.62/MMBtu to $12.29-23.53/MMBtu.

In reaction to this, CAISO alleges that the generators have sought something broader than a rule waiver, and instead are trying to establish a completely different cost recovery rule. The request "goes well beyond the scope" of the CAISO's existing cost recovery provisions, said the CAISO filing.

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