-----Original Message-----
From: 	Alvarez, Ray  
Sent:	Tuesday, May 29, 2001 8:16 AM
To:	Alonso, Tom; Badeer, Robert; Belden, Tim; Crandall, Sean; Driscoll, Michael M.; Fisher, Mark; Guzman, Mark; Heizenrader, Timothy; Mallory, Chris; Mara, Susan; Motley, Matt; Platter, Phillip; Richter, Jeff; Scholtes, Diana; Swain, Steve; Swerzbin, Mike; Williams III, Bill; Allen, Phillip K.
Cc:	Walton, Steve; Mara, Susan; Comnes, Alan; Lawner, Leslie; Cantrell, Rebecca; Fulton, Donna; Dasovich, Jeff; Nicolay, Christi; Steffes, James; jalexander@gibbs-bruns.com; Allen, Phillip K.; Noske, Linda; Perrino, Dave; Black, Don; Frank, Robert; Miller, Stephanie; Tycholiz, Barry
Subject:	Order Clarifying April 26, 2001 Order on MMP

Late in the afternoon on Friday May 25, FERC issued an order providing clarification and preliminary guidance on implementation of the mitigation and monitoring plan for the California wholesale electric markets that it adopted on April 26. The order is limited to clarifying four critical issues prior to the Mitigation Plan's May 29 (today) effective date: (1) treatment of generators who did not supply heat and emission rates; (2) calculation of a natural gas proxy price; (3) price mitigation in the ISO's spot markets other than Imbalance Energy; and (4) creditworthiness.  The order does not resolve the rehearing requests, nor does it accept or reject the ISO's proposed tariff amendments for filing.  These pleadings are still under review and FERC will address them in a separate order.  

Treatment of Generators Who Did Not Supply Heat and Emission Rates

FERC accepts the ISO's proposal for generating units within California (including non-public utility generating units) that have not supplied heat and emission rates in compliance with the April 26 Order:

For the generating units that have not provided the requisite data or whose data the ISO believes to be inadequate, the ISO will use data from a viable alternative source (e.g., either current or pre-existing Reliability Must-Run Contracts).  If an alternative source of data does not exist and the generating unit continues to refuse to supply the requisite information, the ISO will treat the non-compliant generators as price-takers, i.e., the ISO will assume a $0/MWh bid for all available capacity from these units.  These generators, if dispatched, will be paid the market clearing price.  

The FERC finds that to the extent a non-compliant seller does not wish to be treated as a price-taker, the ISO's approach will provide such entities with an incentive to provide the ISO and the Commission with the requisite data.

Calculation of a Natural Gas Proxy Price

FERC rejects the ISO proposal to calculate a proxy natural gas cost based upon the simple average of Gas Daily index prices for Malin, PG&E CityGate, and Southern California Border (Kern River Station).  The ISO is directed to calculate the natural gas proxy price using the published daily prices for Malin, PG&E CityGate, Southern California Border (Kern River Station), SoCalGas large packages, and PG&E large packages.  The Commission will consider whether any changes should be made to the California delivery points during rehearing of the April 26 Order.      

Price Mitigation in the ISO's Spot Markets other than Imbalance Energy

The FERC finds that the ISO erred in its interpretation- that it does not intend to apply any price mitigation to its Ancillary Services spot markets or Adjustment Bids. The April 26 Order did not explicitly address the issue of price mitigation in any market other than that for Imbalance Energy, the order nonetheless noted that "this proceeding was established . . . to address whether a price mitigation plan was needed to replace the $150/MWh breakpoint methodology."  The $150/MWh breakpoint methodology applied to the ISO's Ancillary Services markets.  Therefore, the ISO must replace the $150/MWh breakpoint methodology in those markets with the superseding methodology adopted in the April 26 Order.  The Commission further clarifies that the April 26 Order did not replace the ISO's current methodology for mitigating Adjustment Bid prices.

With respect to calculating the market clearing price for Ancillary Services, FERC directs the ISO to use each relevant average hourly mitigated Imbalance Energy price.  If the Ancillary Services markets clear below the average hourly mitigated Imbalance Energy price for that hour, then the ISO will pay the Ancillary Services clearing price for that market.  If the Ancillary Services markets clear above the average hourly mitigated Imbalance Energy price, then the ISO will use that price to clear the market and will pay as-bid for all Ancillary Services that are needed above the mitigated price.  Bids accepted above the mitigated price will be subject to refund and justification.  

Creditworthiness

As of May 29, 2001, FERC expects the ISO to ensure the presence of a creditworthy buyer for all transactions made with all generators who offer power in compliance with the must-offer requirement in the Mitigation Plan. 


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