FERC is refusing to budge from a recent order that directs the California Independent System Operator (Cal-ISO) to assure payment for all third-party energy sales made to the state transmission coordinator.

At issue is an April 6 order issued by FERC that directed Cal-ISO to abide by a Feb. 14 ruling (see Daily GPI, April 11). The February order prohibited the ISO from relaxing the creditworthiness standards for third-party electricity sales to the state’s troubled investor-owned utilities, Pacific Gas and Electric and Southern California Edison.

In May, requests for rehearing of FERC’s April decision were filed at the Commission by Cal-ISO, the California Electricity Oversight Board and the California Public Utilities Commission. According to the petitioners, the existing creditworthiness provisions in the ISO tariff simply describe the conditions under which a scheduling coordinator loses its right to submit schedules and the Commission recognized this in its February order.

The petitioners then use this interpretation of the ISO tariff and the February order to support two arguments for rehearing. First, the petitioners assert that reconsideration is warranted because the April 6 order required changes to the ISO tariff that could only be ordered through a proceeding under section 206 of the Federal Power Act (FPA), and not section 205 of the FPA. Second, the petitioners argue that a rehearing is warranted because the April 6 decision is inconsistent with the February order and is not the result of reasoned decision-making.

But FERC on Wednesday rejected the petitioners’ interpretation of the ISO tariff creditworthiness requirement and again concluded, as it did in the April 6 order, that it does entitle third-party suppliers to credit protection for both scheduled and unscheduled transactions. The Commission further rejected the argument that the April 6 order required amendments to the tariff beyond those sought by Cal-ISO. As for assertions that the April 6 order was inconsistent with the February ruling and not the result of reasoned decision-making, FERC concluded that the two orders are not only consistent but, in fact, the reasoning in the February order dictated the result in the more recent April decision.

Overall, the Commission concluded that any short-term benefits of excusing Cal-ISO from enforcing creditworthiness standards would be quickly outweighed by the long-term adverse effects on the market and ultimately on the public as a whole. “In summary, it would be unreasonable to limit the ISO’s creditworthiness enforcement duties to rejecting schedules from noncreditworthy parties.”

Commissioner William Massey offered a concurrence to this week’s order. Previously, Massey expressed concern that a strict application of Cal-ISO’s creditworthiness standards may prevent the ISO from performing its fundamental task of keeping the system in balance and thereby maintaining the grid’s reliability. Massey on Wednesday said he was relying on the “clear, unambiguous” statement in FERC’s order that the ISO tariff does not allow suppliers to ignore emergency dispatch orders. “As I construe this, the ISO may issue whatever dispatch orders are necessary to maintain grid reliability, and the ISO tariff requires suppliers to comply without exception,” Massey wrote, which he said substantially resolves his earlier concerns.

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