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News Digest

Dynegy's David Francis, vice president for western power trading, testified on Dec. 21 on why he thought the ISO was bending the rules:
Fortnightly Magazine - February 1 2001

Reserves. Finding fault with a fix-it plan proposed in September, and seeing no resolution of market flaws, the FERC told the New York ISO to maintain its existing price cap of $2.52 (plus opportunity costs) in the non-spinning reserve market, and ordered a technical conference to explore possible solutions.

"We find that the present state of the ... market is largely the same as that which precipitated mitigation in the first place," said the FERC, noting that several market flaws continued to persist: (1) a highly concentrated market, (2) no viable plan for allowing some participants to "self-supply" their own operating reserves, and (3) no solution to the problem of moving power reserves across transmission constraints from western New York to the eastern sector.

Dissenting commissioner Curt Hébert questioned the idea of a conference: "The exchange ... may make for an interesting salon, but will lead nowhere." . -L.A.B.

Michigan Transco Plan. Facing widespread opposition, the FERC agreed to rehear its order that allowed International Transmission Co. (to be created by Detroit Edison) to charge transmission rates pegged and frozen at the level of the transmission component of Detroit Edison's retail bundled electric rates, as set by the Michigan PSC. .

Must-Run Protocols. The California PUC, ISO, and Electricity Oversight Board each filed protests opposing a new formula rate tariff proposed by Southern Energy Delta and Southern Energy Protrero, which is designed to allow Southern Energy to recover any potential revenues that it might otherwise lose on reliability must-run (RMR) plants because of new ISO Tariff Amendment 26. That amendment, known as the "pre-dispatch protocol," now forces RMR plant owners to choose between two alternative forms of payment: (1) the standard RMR contract payment, which includes variable costs plus a fixed-option payment for capacity value; or (2) the market-clearing price in the day-ahead energy market, but forces RMR owners to make that choice blindly, before the day-ahead market clears and the price becomes known.

Southern Energy claims that the RMR contract allows plant owners to file rate changes to recover unforeseen costs imposed by future ISO tariff changes, but the PUC, ISO, and EOB claim that Southern's proposed formula rate is open-ended, putting no cap on potential recoveries, which would depend on differentials between RMR contract rates and hourly markets.

In particular, the ISO points out that the availability of the RMR contract rate actually makes RMR owners better off than other generators, since RMR plants with high startup costs or long ramp-up times can keep running and avoid off-peak losses during periods when day-ahead market rates might otherwise fall below variable running costs. The ISO opposes recovery of opportunity costs, insisting instead that RMR dispatch should allow plant owners only to recover any net incremental costs (netted against incremental revenues) incurred by making their plants available for must-run dispatch. .

Midwest ISO Defections. State utility commissions in Illinois and Michigan urged the FERC to delay its review of the request by Illinois Power (through its parent company Dynegy) to withdraw from the Midwest ISO in favor of the proposed Alliance Regional

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