Everyone,

This is hot news showing that the CAISO/CDWR relationship is even more cozy than we thought.  I am not sure how to best use this information, but this scam needs to be brought to the public's and FERC's attention.

1.  According to two sources, the CAISO is helping to bail Gov. Davis out of his high-priced CDWR long-term power contracts by purchasing CDWR's excess energy as an "Out Of Market" purchase---instead of purchasing real-time energy from the CAISO's Supplemental Energy auction as required by the CAISO Tariff.  The costs of purchasing this high-cost power is being charged to Scheduling Coordinators who are largely unaware of the CAISO's surreptitious transactions.

2.  This sweetheart deal violates the CAISO Tariff, which requires the CAISO to buy energy from its Supplemental Energy (Real-Time) auction first.  CAISO Tariff, Dispatch Protocol section 8.6.2 (d).  Only after the CAISO has used up the Supplemental Energy  bids, can the CAISO buy Out Of Market ("OOM") energy.  If the CAISO were following the Tariff, CDWR's excess energy would be treated as an uninstructed deviation and CDWR would be paid the clearing price for Supplemental Energy---which is often as low as $0.00.  Therefore, under the Tariff the CAISO could have paid CDWR the same price paid to other SCs, but instead is buying it at a price agreeable to CDWR.  

3.  By ignoring Supplemental Energy bids in favor of CDWR power, the CAISO is able to manipulate the price it pays for energy in the Supplemental Energy market.  Low CAISO demand for Supplemental Energy drives down prices.  The clearing price for Supplemental Energy has often been as low as $0.00.  Therefore, the CAISO gets to keep all excess energy on the grid for free.  If CDWR was not getting preferential treatment, its energy would be treated as excess energy, and it would get little or nothing for it.

4.  While there is no evidence that Gov. Davis has directed the CAISO to buy from CDWR first, this behavior clearly benefits Davis.  Absent the CAISO's purchases of CDWR's excess energy, CDWR would be forced to sell its energy at a huge loss in the open market (just like many other suppliers).  The media has been been making hay out of Davis's strategy of buying high and selling low.  Therefore, Davis and CDWR benefit by being able to offset some of their losses under the long-term contracts.  Of course, they are only able to offset their losses through a back-door deal with the CAISO.

5.  The costs of this expensive CDWR power are being passed through to unwitting Scheduling Coordinators who, frequently seeing 10-minute Ex Post prices of $0.00, expect that the cost of imbalance energy will be close to $0.00.  These SCs are in for a big surprise.  According to one source at Sierra Pacific, the CAISO charged him as much as $400/MWh for imbalance energy.  (Where is the price mitigation here?)

6.  Who benefits under this scam?  Davis and CDWR.  Who loses under this scam?  In-state generators who are currently obligated to sell to the CAISO; Scheduling Coordinators who overgenerate or that have negative imbalances; consumers who end up paying higher prices for energy.

7.  Sources:  Our client representative from the CAISO has confirmed this practice and "the Friday Burrito," an industry insider publication mentioned it also.

8.  Here is the quote from the Friday Burrito:

"There is another problem that is being introduced by the long-term contracts. The ISO is utilizing the DWR contracts as Out of Market (OOM) calls, thereby forcing the contract energy into the grid ahead of the supplemental energy bids in the balancing energy ex post (BEEP) market. As one of our faithful observers told me, "The ISO will be billing some DRW/CERS long-term contracts to SCs as OOM energy. This has been confirmed by the ISO. This means there is no real-time price transparency. We may see an hourly ex-post price of, say, $15, but this will bear no resemblance to the eventual Real-Time settlement price. There is no way to estimate what the OOM charge was as the ISO doesn't post that information. The implication is that parties buying real-time energy will wait 90 days before theyhave any idea of the price. This sort of price uncertainty is completely contrary to the FERC's goals of creating open, transparent markets." 
9.  Here is the e-mail from our CAISO representative:

-----Original Message-----
From: Almeida, Keoni [mailto:KAlmeida@caiso.com]
Sent: Thursday, August 23, 2001 4:04 PM
To: Emmert, Caroline; O'Neil, Murray P.; Gilbert, Scotty
Cc: Sheidun, Donna; Blair, Kit
Subject: RE: "Burrito"


Issue highlighted in blue lettering. This is being researched internally and
an ISO response on how these transactions are being handled should be
forthcoming, I would think. 





Keoni Almeida 
California Independent System Operator 
phone: 916/608-7053
pager:  916/814-7352 
alpha page:  9169812000.1151268@pagenet.net
e-mail:  <mailto:kalmeida@caiso.com>
  



-----Original Message-----
From: Emmert, Caroline [mailto:Caroline.Emmert@ENRON.com]
Sent: Thursday, August 23, 2001 3:15 PM
To: Keoni Almeida (E-mail)
Cc: Sheidun, Donna; Blair, Kit
Subject: "Burrito"


Can you send me a copy of the 'Burrito' that we were discussing, or at
least outline in an e-mail the name of the person who has written about
CERS and what was published?   What is the official name of this
newsletter?  I have seen them in the past (Harvey Hall used to get it
and sent a couple to me), but I haven't seen it for a long time.

Also, to recap our telephone discussion:  the charges assessed to the
Market in Charge Type 487 are determined by CERS, and are being
collected by the ISO on behalf of CERS, to cover the cost of contracts
that CERS has signed for energy purchases? and 487 pricing/charges have
do direct relationship to the Inc and Dec prices charged or paid to
those who inadvertently over- or under-schedule?  Please clarify that I
have understood this correctly.

Thanks a lot for your assistance.

Caroline


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10.  Here is an e-mail from the intrepid and vigilant Kit Blair, in Volume Management, who first brought this scam to my attention.
 -----Original Message-----
From: 	Blair, Kit  
Sent:	Thursday, August 23, 2001 3:42 PM
To:	Hall, Steve C. (Legal)
Cc:	DL-Portland Volume Mgmt
Subject:	487 Revelation

Steve,
	Here is a summary of what we have learned regarding how the CAISO is handling 487.  Kent at Sierra Power inquired to me why he was being charged 487, (487 is the charge code the CAISO uses when it has to go out of market, and purchase power that exceeds $150.00/mwh, 481 is the charge code they use to credit it back), for the same hours and intervals that both the INC and DEC prices were zero.  This was obviously very peculiar and nobody in VM knew the answer. So Caroline posed the question to Keoni at the CAISO.  His response was this:  that the CAISO is charging 487 regardless of the INC and DEC prices, to cover the forward market contracts signed by CDWR and CERS.  In effect, they are ignoring their tariff that states they are supposed to purchase power at the lowest price, and are in effect trying to recover costs for CDWR and CERS.   

-Kit