While California’s independent grid operator, Cal-ISO, told FERCyesterday the state was overcharged as much as $6.2 billion forwholesale power bought over the last 11 months, Dynegy Inc.disputed an earlier presumption by FERC that it was among thesuppliers that were overcharging California buyers in January andFebruary.

In a special press briefing, called because of premature newsreports on the filing, Cal-ISO’s officials stopped short ofactually claiming energy buyers in the state were owed the $6.2billion. “It is way too early to make that sort of conclusion,”said Cal-ISO General Counsel Charles Robinson. The ISO alsocautioned the figure was based on having only partial costinformation from generators and suppliers. The estimate wascontained in the ISO’s comments filed in response to the FederalEnergy Regulatory Commission’s investigation of the bulk powermarket.

The Cal-ISO asked the federal regulators to be more aggressivein mitigating potential market power in California’s wholesalepower sales overall – not just when supplies are extremely tight inStage Three alerts imposed by the grid operator. In general, theCal-ISO’s filing strongly suggests that FERC can and should do moreto prevent suppliers from charging whatever the market will bear.Currently, FERC’s $150 per MWh “soft” price cap only applies inStage Three alerts.

Dynegy, one of the companies listed as exceeding that cap duringJanuary and February, said it would provide information to proveits prices were just and reasonable. FERC had accused 13 suppliersof exceeding the allowed prices to the tune of $124 million for thetwo months (see Daily GPI, March 12 and March 19). Dynegy’s filing,to be made today, will claim FERC’s methodology to determineJ&R rates is flawed, and does not represent market conditions.Dynegy said it will address: inaccurate prices used for natural gasand NOx credits; FERC’s policy decision that the marginal unitshould not be able to recover more than its variable cost under anycircumstance; and opportunity costs incurred as a result of annuallimitations on power production in order to comply withenvironmental regulations.

Meanwhile, the major merchant generators are not the onlysuppliers included in the Cal-ISO’s estimates ofmulti-billion-dollar excessive charges. Various municipals andgovernment entities also appear, such as the Los Angeles Departmentof Water and Power and BC Hydro – a total of 26 in all.

A major concern of the Cal-ISO is that FERC’s staff is assumingCalifornia going forward will only depend on the spot market forabout 5% of its supplies, compared with the 15% to 20% levels inrecent weeks and higher levels (25%-30%) over the past eight monthsthat have greatly inflated the state’s electricity bill.

“Our report is not claiming there was ‘overcharging’necessarily, but the prices are well beyond what we would think asreasonable in a competitive market,” said Anjali Sheffrin, Cal-ISOmarket analysis director. “When the market doesn’t have competitiveprices, these suppliers have taken advantage of it. They werebidding whatever the market will bear.

“In a competitive market, no single supplier can determine andinfluence the market-clearing price, and what we show in ouranalysis is that, in fact, they have that ability. FERC allowedmarkets to take place in California on the assumption supplierscouldn’t influence the price. What we are trying to do (in thislatest filing) is show that assumption is wrong, and show how thesuppliers did in fact, manipulate the prices.”

Cal-ISO’s Robinson drew short of saying that some of theovercharges constituted illegal or criminal behavior. He didconfirm that Cal-ISO has shared its data with all of the ongoinginvestigations of the wholesale prices being carried on the stateattorney general, state legislature and California Public UtilitiesCommission.

“This is our response to a study that FERC staff has released(see Daily GPI, Nov. 2, 2000),” said Cal-ISO spokesperson PatrickDorinson, noting as Sheffrin did, that the Cal-ISO calculations ofover-collections do not have detailed cost information thatpresumably the generators will be submitting to FERC with theirresponses to this same staff study.

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