Southern California Edison and Pacific Gas and Electric(PG&E) suffered a major blow Wednesday when FERC deniedproposals to relax the creditworthy standards for the utility powerpurchases from third-party suppliers.

“We deny the [proposals] to the extent they allow PG&E andSoCal Edison to continue to schedule transactions from third-partysuppliers without adequate assurance of payment,” the Commissionorder said. However, it noted it would permitless-than-creditworthy utilities to purchase power if they acquirethe “appropriate support from creditworthy counterparties.”

FERC agreed to waive the creditworthy requirements for theutilities to schedule their own generation and use their owntransmission facilities.

In rejecting the proposals of the California Independent SystemOperator (Cal-ISO) and California Power Exchange (Cal-PX) withrespect to third-party purchases, the order said, “We find that bysimply lowering the [creditworthy] standards for the two largestbuyers in these markets, the proposed amendments [would] entail aninappropriate unilateral shifting of unacceptable financial risksto both large and small third-party suppliers.”

Moreover, “we are concerned that a lowering of the financialcreditworthiness standards, without some assurance of payment forthird-party sales, would further increase prices paid byconsumers,” the order noted [ER01-889]. “This is because…thetariff revisions likely would increase the risk premium added tothe price of power due to the exposure of non-payment.”

However, the Commission said less-than-creditworthy utilitiescould continue to schedule power transactions if they can getsomeone to, in effect, co-sign for them. They could get creditbacking from a state agency, or a specific state bond could beissued for the purpose of backing up their power purchases, itnoted.

FERC directed the Cal-ISO to make the changes to its tariff andsubmit a compliance filing within 15 days. Since the Cal-PX hasclosed its day-ahead and day-of energy markets, revisions of thecreditworthiness provisions of its tariff weren’t required, theCommission said.

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