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Cal-ISO Told to Open Access

Electricity: Regulators prohibit power grid operator from favoring state water department.


U.S. energy regulators told the operator of California's power-transmission network to provide equal access for suppliers who don't have long-term contracts with the state and can deliver cheaper electricity.

Reliant Energy Inc. and Mirant Corp. had accused the system operator of skirting its rules to allow the California Department of Water Resources, the primary buyer in the state, to sell power it had been committed to buy under contracts signed when prices were soaring. Consumer groups alleged the state has locked into above-market prices for the next decade.

The Federal Energy Regulatory Commission said the California Independent System Operator must apply the same rules for all buyers and sellers, including the water department, which has been buying power on behalf of the state's two largest utilities since they became insolvent. The commission has stepped in twice this month to regulate California's power market.

"We're not done with them yet," FERC Chairman Pat Wood told reporters. The commission will continue to monitor the California market to make sure prices are fair, he said.

The commission rejected the Cal-ISO argument that the water department was entitled to "special considerations" because it is the sole guarantor of payment. It also ordered Cal-ISO to provide a detailed explanation when it goes outside the market to buy power. Such out-of-market sales are supposed to be made at the last minute when normal procedures wouldn't allow the agency to secure sufficient supply.

In addition to managing the state's power grid, the Folsom-based Cal-ISO makes purchases in the spot electricity market to fill last-minute gaps between supply and demand. Those purchases once were paid for by the utilities and now are covered by the state water department. Tuesday's order applies to those purchases.

"We do plan on complying," said Cal-ISO spokeswoman Stephanie McCorkle. "We have to refrain from commenting further until we see the order."

California's water department has about $43 billion in power contracts, which Gov. Gray Davis said were needed to bring stability to the state energy market. Those contracts were signed this year when state officials were trying to avert blackouts.

The water department has spent more than $10.4 billion buying electricity since it began the purchases on behalf of utilities in January. California's two largest utilities, owned by PG&E Corp. and Edison International, are insolvent after buying power in the wholesale market for more than state law allowed them to charge customers.

The complaint last month by Reliant and Mirant alleged that Cal-ISO abandoned its mission of acting as a neutral and independent system operator and is acting as an agent of the state water department. That violates Cal-ISO's own rules and the Federal Power Act, Mirant and Reliant said.

Earlier this month, commissioners ordered the grid operator to make sure $1.2 billion in overdue bills was paid.

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