FERC Filings
MOTION FOR LEAVE TO INTERVENE AND PROTEST OF THE ELECTRIC POWER SUPPLY ASSOCIATION-California Independent System Operator Corp.- Docket No.ER01-889-005
II. THE COMMISSION SHOULD REJECT THE CAISO’S COMPLIANCE FILING
On May 11, 2001, the CAISO filed a tariff amendment intended to implement the Commission’s April 6th Order reaffirming that all CAISO transactions involving third party suppliers must be backed by a creditworthy counterparty. In its letter filing, the CAISO asserts that “only one party – DWR – has stepped forward to provide the credit support required by the Commission.” However, the CAISO goes on to maintain that DWR will only back certain transactions and that it “must have access to the ISO control room floor and a limited amount of nonpublic information” as a condition for its “continued provision of credit support.” Notwithstanding the fact that the prolonged lack of state action between June 2000 and January 2001 contributed to the paralyzing credit problems that exist today, no other previously creditworthy market participant asked for such preferential treatment.
Despite its singular status now as the principal
purchaser of power on behalf of load-serving entities, the California DWR is not entitled to such precedent-setting treatment. This request should be summarily denied.
A. The Commission Should Not Allow Further Politicization of the CAISO’s Decision Making
The basic premise underlying Order Nos. 888 and 889 is the separation of transmission and merchant functions. As EPSA has already pointed out in numerous filings, DWR is now the dominant purchaser in California’s energy markets. With state control of the CAISO, the CAISO and DWR are now functioning much like a vertically-integrated utility, without generation ownership, that is responsible for transmission operations and merchant sales to retail customers. Thus, having DWR in the CAISO control room, with access to nonpublic information raises serious problems. In Order No. 888, the Commission concluded that the functional unbundling of wholesale services is necessary to implement non-discriminatory open access transmission service. In addition, the Commission stressed the need for a strong code of conduct to separate employees involved in transmission functions from those involved in wholesale power merchant functions.
In Order No. 889, the Commission noted that it was requiring “the functional unbundling of transmission operations and wholesale marketing functions because we are persuaded that this will prevent abuses based on preferential access to information and other discriminatory behavior.” Order No. 889 imposed standards of conduct, described as “necessary to ensure that Transmission Providers do not use their unique access to information unfairly to favor their merchant functions, or those of their affiliates, in selling electricity in interstate commerce.” In Order No. 889-B, the Commission, correctly, ruled that “those people in the company that are involved in wholesale power purchases as well as wholesale sales cannot interact with the transmission personnel other than through the OASIS.”
In addition to the Commission’s rules, the CAISO rules also protect the confidentiality of information and many, if not all, of the contracts to purchase power include confidentiality clauses. Under Sections 20.3.1 and 20.3.3 of the CAISO Tariff, no Market Participant shall have the right hereunder to receive from the ISO or to review any documents, data or other information of another Market Participant to the extent such documents, data or information is confidential or commercially sensitive. DWR clearly falls under the CAISO definition of Market Participant, which includes:
<center>an entity, including a Scheduling Coordinator, who participates in the Energy marketplace through the buying, selling, transmission, or distribution of Energy or Ancillary Services into, out of, or through the ISO Controlled Grid.</center>
In its May 11th filing, the CAISO would have the Commission roll back one of its most basic underpinnings of its approach to fostering competitive markets, as well as a requirement of the CAISO’s own Tariff. The Commission is already faced with serious concerns about the independence of the CAISO. EPSA, and others, have repeatedly raised concerns about the effects of California’s new law, A.B. x5, that unilaterally directed the replacement of the existing CAISO Board with a five-member board to be appointed by the Governor and subject to confirmation and oversight by the California Electricity Oversight Board (EOB). The requirements of the Commission’s December 15th Order , directing that the CAISO Governing Board be replaced with a non-stakeholder Board and that the members selected to serve on the new Board be independent of market participants, has yet to be carried out by the CAISO or enforced by the Commission.
These concerns about the independence of the CAISO have, in turn, given rise to serious concerns about the CAISO’s decision-making. In more than one instance, the politicization of the incumbent CAISO Board has led to a shift in focus away from system reliability. For example, the CAISO’s approach to operations and maintenance scheduling appears to be driven by economic, rather than reliability, concerns. There are also concerns that the CAISO’s unilateral action to derate the south-to-north ATC at the California-Oregon border, which now only covers Firm Transmission Rights (FTR), was driven not by changes in system configuration, but by an effort to limit export schedules. In its proposed “Market Stabilization Plan,” the CAISO took positions before the Commission that were unrelated to the reliability of the transmission system and that were clearly intended to favor the interests of the State of California and DWR over other market participants in negotiations for the sale of energy.
With the demise of the California Power Exchange (PX) and the loss of Pacific Gas & Electric Company (PG&E) and Southern California Edison’s (SCE) creditworthiness, sales to DWR are now a huge component of the California market. The PX was created as a separate entity to meet the requirements of Order Nos. 888 and 889. However, the dissolution of the PX and the vesting of purchasing authority in DWR does not relieve California from maintaining the mandates of Order Nos. 888 and 889. In addition, allowing DWR access to transmission operating information gives it an unfair competitive advantage in its contract negotiations with suppliers. It also gives DWR an unfair competitive advantage vis-a-vis other market participants who do not have access to this confidential data.
These concerns are not insignificant and are exactly the type of concerns that gave rise to the requirements of Order Nos. 888 and 889 and the CAISO tariff provisions in the first place. Under Commission rules, the CAISO’s proposal would be summarily rejected anywhere else. As the Commission has recognized with respect to RTOs, the solution is to bring California more into line with existing Commission rules and policies, not to create more California-only exceptions which have significant anti-competitive effects. Competitive power suppliers must have non-discriminatory access to the interstate transmission system in California under the terms and conditions set forth by the Commission’s rules and procedures. Credit concerns, which the Commission has addressed repeatedly, cannot provide the basis for disregarding fundamental principles of fairness and equity. Allowing DWR access to the CAISO control room and its nonpublic information will compound the current uncertainties and suspicions, which in turn will produce greater risk and higher cost for all market participants.
B. Credit Issues Must Be Resolved
The April 11th CAISO filing stems from a continuing concern about credit concerns in California that must be finally and completely resolved. Continued failure to resolve this issue is creating unnecessary risk and cost for the California market. The Commission has already recognized that credit risks in California have been real and substantial, both with respect to past sales and for ongoing sales. In a series of decisions the Commission addressed credit issues, noting in its February 14th Order , “Moreover, we are concerned that a lowering of the financial creditworthiness standard, without some assurance of payment for third party sales, would further increase prices paid by consumers. This is because…the tariff revisions likely would increase the risk premium added to the price of power due to the exposure of non-payment." The Commission has repeatedly ordered the CAISO to comply with its creditworthiness requirements.
This continuing concern about credit has been raised repeatedly by EPSA members, including a recent filing by Dynegy and others that asks the Commission for enforcement action against the CAISO to require compliance with creditworthiness requirements. Clearly, credit concerns continue to be a significant problem in California and EPSA reiterates the request of others that the Commission finally resolve this important issue. Granting DWR access to sensitive commercial data will not accomplish this goal.
It is critical for the CAISO to provide credit assurances for (and pay for) any energy that sold in its markets. This concept appears to be recognized by the CAISO in a May 25th “Supplemental Market Notice re: Credit Issues,” which states that “unless the ISO can provide reasonable assurances that a party meeting the ISO’s credit requirements will support a specific transaction, the ISO will not enter into the transaction with respect to any resource.”