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Industry News

Mirant, Reliant Say Cal-ISO Rigging Power Market

LCG, Oct. 19, 2001--Mirant Corp. and Reliant Energy Inc. have filed a complaint with the Federal Energy Regulatory Commission charging the California Independent System Operator with manipulation of the state's wholesale power market.

The two companies -- among the largest independent power producers in California -- claim that a "highly politicized" Cal-ISO has "engaged in an organized, deliberate effort to subvert the market mechanisms."

"Politicized," Cal-ISO may be. California Gov. Gray Davis earlier this year replaced the agency's board with appointees amenable to his handling of the state's electricity crisis. The board had previously been made up of representatives of consumer groups, generating companies and the utilities that own the transmission lines the ISO operates.

The contention boils down to state agencies making power deals without telling anyone the details. In the early spring of this year, when Pacific Gas & Electric Co. was forced to seek protection under Chapter 11 of the federal bankruptcy law and Southern California Edison Co. began its long fight to stay out of bankruptcy court, the state stepped in to make wholesale power purchases on behalf of the utilities.

The California Department of Water Resources became the purchasing agent for the utilities but has said that in order to pay for the power it needs additional information that had not previously been provided about who supplies the electricity and how many megawatts were provided.

Cal-ISO also purchases power to ensure reliability of the state's transmission system, and has claimed that the details of its purchases must remain confidential in order not to undermine its bargaining position.

In addition to committing the state to some $43 billion in long-term power purchases which extend as much as 20 years into the future, the water agency has purchased between $7 billion and $9 billion worth of power this year on the high-priced spot market to meet the state's day-to-day needs.

Since then, FERC instituted price controls covering 11 states in the West which, along with an unusually cool summer, have driven spot market prices down. Some say that the water agency is buying cheap power in real time to meet their scheduled energy needs and dumping that expensive energy they signed contracts for into the ISO imbalance market as an "out of market" purchase, where there are no price caps.

The ISO also is under a FERC requirement that it provide a "credit worthy buyer" for electricity, which the utilities are not. "We are doing our best to walk a fine line but we are in a difficult position," ISO spokesman Gregg Fishman said.

Whether Mirant and Reliant have a case may depend on whether they have suffered any damages. To Davis and others in his administration, the power producers are the ones who did the damaging in the first place.

The actual case is, California shot itself in the foot with its 1996 electric restructuring law.

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