FERC Backs Policy on Energy Charges

Dynegy Inc., Williams Cos., Edison International and other California power sellers can continue to charge market rates for the cost of turning off unneeded generation, federal regulators said Thursday.

The action came in response to a complaint filed by the California Electricity Oversight Board over such so-called decremental energy rates.

Erik Saltmarsh, chief counsel for the board, said the decision leaves open a loophole in an order issued by the Federal Energy Regulatory Commission in 2001 that aimed to reduce price fluctuations in the state.

The commission first decided in March that the regulatory gap could be dealt with in the state’s comprehensive market redesign. Then, in June, federal regulators capped the price California must pay generators not to produce electricity when demand is low at $30 a megawatt hour, plus the cost the power would have sold for. But critics say suppliers still are using the system to overcharge by tens of millions of dollars.

“This is behavior that we saw from some of, not all, the largest private generating companies,” Saltmarsh said. “It used to be we had generators charging us outrageous amounts of money to run their power plants during the day. Now we have generators charging us outrageous amounts of money to run their power plants during the evening.”

To keep the state system in balance, the California Independent System Operator orders suppliers at times to shut excess generation. In many cases, the generator returns some of the savings for not producing power to Cal-ISO. In certain cases, Cal-ISO must pay the generator not to produce.

Suppliers have used this practice to “game” the system by overproducing during low-demand periods until Cal-ISO pays them to stop, Saltmarsh said. California now wants suppliers to justify the charges before compensation is paid.

But regulators were unmoved. “If Mr. Saltmarsh has evidence of gaming, then he needs to present it to the commission so we can act on it,” said commission spokesman Bryan Lee. “We initially rejected the complaint because we recognize this as an issue that we were going to address in the California market redesign process.”

Meanwhile Thursday, Williams reported a $201-million loss for the fourth quarter, a substantially smaller loss than a year earlier. Williams shares rose 77 cents to $3.67 on the New York Stock Exchange.