In a surprising move, the Federal Energy Regulatory Commission last Tuesday reversed an arbitrator’s decision denying claims by six California cities that they were unfairly charged for generation dispatched in early 2000 to replace service from reliability must-run (RMR) units that were unavailable at the time.

The Commission ordered the California Independent System Operator (CAISO) to make refunds to the cities of Anaheim, Azusa, Banning, Colton and Riverside (Southern Cities) and the City of Vernon, with interest as appropriate, within 60 days, and to submit a refund report a month later [EL03-54]. The Southern Cities were billed more than $1.5 million for the service, while Vernon was charged $351,600.

The FERC ruling is noteworthy in that the agency has seldom, if ever, upset a binding arbitration decision. The Commission actively encourages parties to use arbitration to resolve their differences.

The dispute involved costs incurred by the CAISO for service provided between Feb. 7 and March 22, 2000 to replace certain RMR generation units that were not available. Initially, the ISO billed the costs to Southern California Edison, as the local participating transmission owner (PTO). But the utility protested the charges, and the ISO re-billed the costs to all loads in the SP-15 zone as intra-zonal congestion charges.

The Southern Cities sought arbitration to resolve the matter. In an April 2002 ruling, the arbitrator “stated simply that all claims of the Southern Cities and Vernon were denied.” The cities petitioned for a review of the ruling by FERC, which sent the decision back to the arbitrator with directions to include findings of fact and conclusions of law.

The arbitrator followed the Commission’s directions, but it returned with the same ruling in February 2003. The six cities promptly sought a second FERC review, which resulted in the reversal.

“Had the RMR units in SoCal Edison’s service area been available, SoCal Edison would have been billed the costs for such dispatch,” the agency order said. “In this regard, we add that we believe the arbitrator did not fully consider either the policy underlying the establishment of RMR contracts or their purpose in relation to the ISO.

“While the ISO tariff directs that intra-zonal congestion costs be assigned to all scheduling coordinators [such as the cities] within the affected zone, when RMR units are not available and other resources are dispatched in their place, then those other resources are being dispatched, not for intra-zonal congestion, but for voltage support. Assignment of the costs of those resources to intra-zonal congestion…would not be consistent with cost causation principles.”

The order concluded “the disputed charges should be borne by SoCal Edison, as the PTO, rather than allocated as intra-zonal congestion to all scheduling coordinators, including petitioners.”

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