UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Dynegy Moss Landing, LLC Dynegy Morro Bay, LLC El Segundo Power LLC Reliant Energy, Inc. Complainants, v. California Independent System Operator Corporation, Respondent. Docket No. EL08-13-000 MOTION TO INTERVENE AND PROTEST OF SOUTHERN CALIFORNIA EDISON COMPANY TO THE COMPLAINT OF DYNEGY AND RELIANT Pursuant to Rules 211 and 214 of the Rules and Regulations of the Federal Energy Regulatory Commission ( Commission or FERC, Southern California Edison Company ( SCE hereby respectfully submits its motion to intervene, intervention, and protest to the November 30, 2007 Complaint of Dynegy Moss Landing, LLC, Dynegy Morro Bay, LLC, El Segundo Power LLC, and Reliant Energy, Inc. ( Complaint in the above-captioned docket. I. MOTION TO INTERVENE SCE, a wholly owned subsidiary of Edison International, is an investor-owned utility, subject to the Commission s jurisdiction. SCE s principal place of business is 2244 Walnut Grove Avenue, Rosemead, California 91770. SCE is a Participating Transmission Owner ( PTO in the California Independent System Operator Corporation ( CAISO, and thus is affected by the outcome of this proceeding. As such, SCE has an immediate interest in the - 1 -
outcome of this proceeding. SCE s interest cannot be represented by any other party and, consequently, SCE respectfully requests that the Commission grant SCE permission to intervene in this proceeding. SCE hereby reserves its rights to raise substantive issues regarding all aspects of this proceeding, and to file additional comments, as warranted by the proceeding. SCE designates the following person for service on the Commission s service list in this proceeding: Erin K. Moore Southern California Edison Company 2244 Walnut Grove Avenue Rosemead, CA 91770 (626 302-6848 erin.moore@sce.com II. PROTEST A. Introduction Complainants Dynegy Moss Landing, LLC, Dynegy Morro Bay, LLC, El Segundo Power LLC, and Reliant Energy, Inc (jointly California Generators filed a complaint pursuant to Federal Power Act section 206 requesting that the Commission confirm its finding that the pre-rcst must-offer obligation capacity pricing is unduly discriminatory and unjust and unreasonable, and establish California Generators proposed replacement mechanism as the just and reasonable payment for capacity during the gap between the termination of RCST and the beginning of the Interim Capacity Services Tariff ( ICPM. 1 While the California Generators couch their proposal as a discrete set of tariff provisions modeled on the structure of the RCST, but with certain differences 2 such that the RCCM is just and reasonable and an 1 Complaint of Dynegy Moss Landing, LLC, Dynegy Morro Bay, LLC, El Segundo Power LLC, and Reliant Energy, Inc. ( Complaint at p. 24. The Complaint also requested that the Commission grant California Generators request for Fast Track Processing and require responses to the complaint to be filed within 12 days. The Commission has not ruled on that request, effectively denying it. 2 Complaint at p. 11. - 2 -
appropriate remedy., 3 with merely updates and revisions [to] RCST capacity payment values and provides [for] a meaningful term of commitment for generators, 4 that is simply not the case. Rather, the proposal constitutes an 11 th hour attempt by the California Generators to rush through a mechanism that has not been fully considered by all affected parties, including the California Independent System Operator ( CAISO, or the Commission, to determine whether the proposed mechanism is just and reasonable. The Commission should reject the California Generators request for the reasons discussed below. B. There is Insufficient Time for Adequate Review of the Proposal The California Generators have proposed that a new capacity compensation mechanism the Reliability Capacity Compensation Mechanism ( RCCM be instituted between the termination of the Reliability Capacity Services Tariff ( RCST on December 31, 2007 and the establishment of a FERC-approved successor to the RCCM. 5 Given the late hour of the Complaint, there has not been time for a definitive production of relevant evidence. There are several factual issues that must be resolved before RCCM can be deemed just and reasonable, including the reasonableness of: 1 using the LM6000 as the cost reference unit; 2 the proposed trigger for RCCM capacity payments; 3 the duration of the commitment period; as well as several others. The Commission has already determined that the RCST price of $73/kW-year is a just and reasonable rate for capacity that the CAISO would purchase as a provider of last resort. 6 Therefore, there must be an in-depth inquiry as to why double that amount (as proposed by the California Generators would now be just and reasonable. That inquiry must go well beyond California Generators mere assertion that it is, especially given the Commission s 3 Id. at p. 13. 4 Id. 5 Complaint at p. 23. 6 Order on Paper Hearing, 118 FERC 61,096, issued February 13, 2007, at P 69. - 3 -
finding that the target capacity price approved in [the RCST] settlement should encourage generators to instead negotiate contracts. 7 California Generators were not surprised by the termination of the RCST. Despite this, the timing of the Complaint would rush through a proposal at the last moment without allowing time for adequate consideration. Therefore, as well as for the reasons discussed infra, SCE respectfully requests that the Commission deny the California Generators requested relief. In the alternative, should the Commission find that the Complaint has some substantive merit, SCE requests that the Commission set the matter for hearing, to allow the justness and reasonableness of the proposal to be fully explored. C. Extending the RCST is a More Acceptable Alternative 8 SCE has continues to support with the concept that generators should receive just and reasonable compensation for providing capacity services. However, there is already an existing FERC-approved compensation mechanism in place the RCST, which the Commission has extended through MRTU start-up. 9 Unlike the proposed RCCM, the RCST underwent an extensive and lengthy review process and compromise among parties with very diverse interests to ultimately create a mechanism that was acceptable to the Commission. Moreover, the Commission conducted hearings to fully examine the proposal, and required modifications before approving it for implementation. Therefore, as SCE has stated previously, we would not oppose an extension of the RCST without modification through the startup of MRTU, 10 at 7 Id. at P 75. 8 The Commission s Order Instituting a Section 206 Investigation and Denying Motion for Reconsideration and Clarification ( 206 Order, 121 FERC 61,281, issued shortly before the filing of the instant Protest, indicates that the RCST will be extended through MRTU start-up, with the justness and reasonableness of that extension to be addressed in EL08-20. In today s filing, SCE will generally confine its arguments in favor of extending RCST to rebutting the arguments of the California Generators, and will address the broader issues of RCST in docket EL08-20. 9 Id.. 10 Answer of Southern California Edison Company to the Motion for Reconsideration and Clarification of Independent Energy Producers Association, filed October 29, 2007, at p. 3. - 4 -
which time the Interim Capacity Procurement Mechanism ( ICPM the CAISO s successor mechanism designed specifically to work with MRTU will be established. California Generators argument that extending the RCST is inappropriate because it uses outdated values for a reference peaker technology 11 is not persuasive. First, as discussed above, this issue has not been fully explored, and no evidence outside of a self-serving affidavit has been presented. 12 Second, as discussed more fully in section II.E.1 infra, it is inappropriate to base the value on an LM6000 peaking unit. Nor is it relevant to reference the costs incurred to construct four LM6000 peaking facilities in SCE s service area this past summer, which SCE was ordered by the CPUC to install on an extremely expedited basis. The California Generators alternate justification for not extending the RCST is equally unconvincing. The specious argument that the CAISO has effectively nullified the RCST monthly capacity payment by issuing Must Offer Waiver Denials rather than designating units RCST must be rejected as not appropriate for resolution in this proceeding. Rather than weighing against the justness and reasonableness of the compensation mechanism itself, this argument weighs only in favor of more detailed scrutiny of CAISO implementation of the existing RCST. 13 The California Generators argue that the CAISO s suggested remedy of extending the daily MOO compensation rate from the RCST Settlement without the other parts of the RCST is also not appropriate. 14 However, their purported reasoning is distinctly disingenuous: It would be quite inconsistent with the Commission s policy to consider settlements as a whole for it to allow only one provision of the RCST Settlement to survive into 2008. 15 However, that is exactly what the California Generators are urging the Commission to do. They propose to keep those provisions of RCST that benefit them, and replace others with new provisions that are 11 Complaint at p. 12. 12 SCE presents a preliminary discussion below in section II.E.1, but is still in the process of assessing the issue. 13 SCE lacks relevant details on the California Generators allegations, and thus takes no position on whether the CAISO has enforced its RCST tariff provisions in an appropriate manner. 14 Complaint at p. 12. 15 Id. - 5 -
more to their advantage. 16 Thus, the Commission should reject the California Generators proposal. D. The CAISO Has Already Implemented a Stakeholder Process As should be clear from the protracted settlement negotiations and the hearings required by the Commission to determine the justness and reasonableness of the RCST, the issue of a compensation mechanism for capacity services is a complicated and contentious one. The CAISO, working with stakeholders, is committed to a process that will likely result in a mid- January filing to extend RCST. 17 The CAISO is working on this initiative simultaneously with the final phases of testing for MRTU go-live. To say that the California Generators are unaware that being too busy is an acceptable basis for [reinstituting the MOO compensation] is not only without merit, but it indicates an alarming disregard for the current market redesign implementation effort taking place at the CAISO. SCE understands that CAISO personnel are currently working at full capacity to ensure that all systems and market participants are ready for the April 1 st go-live date of MRTU. To distract resources and focus from this important task is counter-productive, especially given that the stakeholder process already under way will result in an interim mechanism, or when, alternatively, the Commission has already provisionally extended the existing RCST mechanism. 16 The California Generators also state that the CAISO offers not a shred of reasoning why cherry-picking one provision from the negotiated RCST Settlement would be just and reasonable. Complaint at p. 8, fn. 18. Importantly, the California Generators offer not a shred of reasoning why cherry-picking several provisions from the negotiated RCST Settlement would be just and reasonable. 17 See CAISO Draft Proposal to Board of Governors for Interim Capacity Procurement Mechanism Tariff Filing, posted December 14, 2007 at http://www.caiso.com/1cb4/1cb4e4cd6f990.pdf. - 6 -
E. Many Specifics of the RCCM Proposal Are Flawed 1. The Reference Unit and Price are Incorrect As a preliminary matter, the California Generators erroneously state that the RCST target capacity price was based on the Cost of New Entry ( CONE. Instead, the Settlement price was an agreed-upon price representing a figure found reasonable by the CPUC, LSEs, the CAISO, and even generators. 18 The Commission then determined that this negotiated price achieves an overall just and reasonable result within a zone of reasonableness. 19 Even assuming, arguendo, that CONE is the appropriate measure, the question of what reference unit should be used to determine CONE has been a contentious one, and cannot be solved by the affidavit of an interested party. In Joint Comments to the CAISO with San Diego Gas and Electric Company, 20 SCE has explained why the LM6000 unit proposed as the reference unit for CONE is inappropriate. In those comments, the Joint Parties (SCE and SDG&E took issue with the CAISO s proposed technology (the LM6000 unit as well as the proposed price level ($162.48/kW-year. Like the California Generators, the CAISO was using the CEC report 21 as the basis for its selection of the LM6000 technology. As the Joint Parties explained, however: Based on the capacity cost methodology that SCE uses at the CPUC, the appropriate technology to price CONE is a 150 MW Frame 7 unit. By adjusting the CEC data to reflect the Frame 7 technology and other financial assumptions discussed below, the annual cost of this unit, prior to any PER deductions, is $99/kW-Year. The CEC report uses data associated with an LM6000 type generator as the basis for the installed capital costs of the CONE. The Joint Parties believe that a Frame 7 and its associated installed costs should be used as the basis of CONE, unless it can be demonstrated that advance technology peakers or combined cycle CTs are less expensive on a net CONE basis. The Joint 18 Order on Paper Hearing at P 34. 19 Id. at P 50. 20 Joint Comments of Southern California Edison and San Diego Gas and Electric on the CAISO s Interim Capacity Procurement Mechanism Proposal #2 ( Joint Comments, submitted October 24, 2007, http://www.caiso.com/1c83/1c83789f481f0.pdf. 21 The CAISO was using the draft version of the report. - 7 -
Parties understand that the CEC report used empirical data associated with specific generation units built by merchant entities and municipalities in response to the 2000-2001 California energy crisis, and that the majority, if not all, of these units were LM6000 technology. However, the Joint Parties believe the prevailing conditions under which these specific units were built may be inconsistent with conditions associated with future CONE (e.g. the need to build on an expedited basis and; therefore, a different type of generator, specifically a Frame 7, is more applicable to determine CONE. The Frame 7 has significantly lower installation cost than the LM6000, and is the least cost technology type option to meet customers peak power needs. 22 The concerns stated in the Joint Comments are as valid in response to the RCCM proposal as they are to the CAISO s ICPM Proposal #2. Therefore, the Commission should reject the California Generators proposal. At the very least, SCE requests that the Commission set the issue for hearing so that all viewpoints may be carefully considered. 2. The Trigger Mechanism and Minimum 3 Month Duration are Unreasonable The Complaint argues that the heart of the RCCM is that waiver-denied Must-Offer Generators are entitled to receive a capacity payment 23 and therefore an RCCM capacity payment is appropriate after a single waiver denial. 24 The Complaint further argues that this is reasonable because generators that have a Reliability Must-Run ( RMR contract or a Resource Adequacy ( RA contract are entitled to a capacity payment that is not triggered by actual dispatch or commitment of the resource for reliability purposes or by the duration of such dispatches or commitments of the generating unit. The Complaint s proposal to trigger an RCCM designation after a single wavier denial is unreasonable and should be rejected. First, the Complaint does not provide any evidence that there are unreasonable barriers to generators competing to receive an RA contract from a loadserving entity ( LSE. Thus the comparison of a generator that was unable to obtain an RA contract to one that was is not relevant. RA resources receive compensation based upon the 22 Joint Comments at pp. 2-3. 23 Complaint at p. 13. 24 Id. - 8 -
terms and conditions they agree to with an LSE. RMR generators receive compensation based upon the RMR contract they have signed with the CAISO. Non-RA/non-RMR generators have not made any similar commitments to LSEs or the CAISO and thus are not, de facto, entitled to similar compensation. Second, under RCST, which was found to be just and reasonable by FERC, 25 a capacity payment is provided to generators that are called to provide service under the Must-Offer Obligation ( MOO. Non-RA/RMR generators dispatched under the must-offer obligation (i.e. denied a must-offer obligation waiver are compensated with a capacity payment equal to 1/17 of the monthly RCST charge. The bid adder for frequently mitigated units is $40/MWh. For both the must-offer obligation and bid adder, total compensation is limited to the maximum RCST payment. The Complaint offers no evidence why the current RCST mechanism, which includes a daily capacity payment, found to be just and reasonable by FERC, would no longer be just and reasonable if it were in effect beginning January 1, 2008 until MRTU start-up. The California Generators propose that under the RCCM, the term for the capacity payment payable after a must-offer waiver denial is the greater of (a three months, or (b the such other period specified by the CAISO. 26 They argue that the current daily 1/17 th MOO compensation rate does not provide generators with a reasonable opportunity to recover their fixed costs. They also argue that the three month term is shorter than the annual term for payment under an RMR contract and many RA contracts. Three months is also the same as the minimum term for units to have been designated to provide services under the RCST. The California Generators arguments should be rejected for several reasons. First, FERC found that the current RCST compensation mechanism was just and reasonable. Second, the compensation mechanism matches the daily offer obligation of non-ra/non-rmr generators. RMR and RA generators are under an obligation to offer capacity to the CAISO for a time period greater than one day in order to receive a capacity payment for greater than one 25 Order on Paper Hearing at P 50. 26 Complaint at p. 14. - 9 -
day. Non-RA/non-RMR generators are not under an obligation to continue operations that is, a non-rmr/non-ra generator has voluntarily elected to continue operations without a commitment from an LSE or the CAISO for a capacity payment for a period of time beyond what has been provided under RCST. Under RCST that payment could be equal to a daily capacity payment equal to 1/17 th of the monthly RCST charge which FERC found to be just and reasonable compensation. Finally, the California Generators have not demonstrated why it is just and reasonable for consumers to pay for three month capacity payment because a single mustoffer waiver request has been denied. To allow a three-month designation based on a single must-offer waiver denial, ignoring the reasons for that waiver denial, would not be prudent and should be rejected. 3. The Effective Date is Inappropriate The Compliant proposes to have RCCM expire at midnight on the date before the effective date of any Commission-approved successor to the RCCM, without regard to when or if MRTU has been implemented. 27 Such a proposal is unreasonable and incompatible with the MRTU market design. Until MRTU start-up, the FERC must-offer obligation on non-ra/non- RMR units continues. Once MRTU starts-up, the FERC must-offer obligation on non-ra/non- RMR units terminates. To have RCCM a compensation mechanism based upon the premise that a FERC must-offer obligation on non-ra/non-rmr units exists continue even when the FERC must-offer obligation does not exist is nonsensical. As stated elsewhere, continuation of the current RCST without modification until MRTU start-up would provide a much more rational approach to providing generators under the FERC must-offer obligation just and reasonable compensation that aligns with the current market design. 27 Id. at pp. 22-23. - 10 -
III. CONCLUSION SCE respectfully requests that the Commission deny the relief requested by the California Generators, or, in the alternative, set the Complaint for hearings so that detailed evidence and arguments can be presented. Respectfully submitted, MICHAEL D. MACKNESS ERIN K. MOORE By: Erin K. Moore Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Telephone: (626 302-6848 Facsimile: (626 302-3540 E-mail: Erin.Moore@SCE.com Dated: December 20, 2007-11 -
CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing MOTION TO INTERVENE AND PROTEST OF SOUTHERN CALIFORNIA EDISON COMPANY TO THE COMPLAINT OF DYNEGY AND RELIANT upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Rosemead, California, this 20 th day of December, 2007. Rodger Torres, Case Analyst SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California 91770 Telephone: (626 302-3902