I spoke with the Ca ISO attorney, Jeanne Sole, today.  She said that the ISO 
is planning to do the following on DG and will announce it soon.

Generators smaller than 1 MW will not be considered Participating Generators 
under the ISO Tariff.

Generators smaller than 10 MW will not require  telemetering

For Generators smaller than 1 MW , there will be no prohibition on netting, 
although the TAC and GMA will still apply -- the ISO will allow the generator 
to "estimate" the charges.  I explored this a bit and she could not explain 
it any better -- except it seems that they may be moving toward giving up on 
those charges for small generators or wink/winking at the DG "estimates".

For Generators smaller than 1 MW there will be no metering requirements form 
the ISO, only requirements from the "local regulatory authroity." (CPUC  or 
munis)

This looks promising.  I hope it's the beginning of more ISO flexibility in 
this regard