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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

to negotiate a price above the bid cap in any instance in which a unit also has a PGA contract. ...

"MOREOVER, I HAVE WITNESSED OTHER INSTANCES when the ISO has called upon an RMR [regulatory must-run] generating unit to supply energy at minimum load at the price called for under the RMR contract, and then required additional energy from the unit under the OOM procedures and at OOM-determined prices, which in most high natural gas pricing periods will be lower than an individually determined RMR price and also lower than the Imbalance Energy price for the hour(s) in question."

David Francis
Vice President
West Power Trading
Dynegy Power Marketing

But earlier, on Nov. 22, the ISO's Randy Abernathy had dismissed such concerns in a letter to Dynegy divisional vice president Lynn Lednicky:

DEAR MR. LEDNICKY:
"RECENT ORAL AND WRITTEN COMMUNICATIONS
have given the ISO concerns about the willingness of Dynegy to respond to ISO instructions. This concern was the basis of a phone call this afternoon. ...

"BASED ON THAT CALL, IT IS OUR UNDERSTANDING that Dynegy will respond and operate when called. Secondly there is a disagreement over compensation for those calls [demands for energy]. While the ISO is willing to review alternate payment approaches in the longer term, it is imperative in the short term that Dynegy responds to ISO operator instructions.

"SO THAT BOTH PARTIES UNDERSTAND THE NATURE OF THE ISSUE before us, the potential consequences of such a failure to respond, the ISO wishes to clarify the following points. ...

"IT ALSO SEEMS NECESSARY TO CLARIFY that ISO reliability instructions are not to be made a function of debates regarding payments above the current ISO price cap. The ISO is well within its authority to call upon a Participating Generator to provide energy out of market without reference to prices bid above the price cap. Consistent with FERC's orders, bids above the ISO's price caps are rejected.

"FINALLY, YOU SHOULD BE ADVISED THAT , given current system conditions, any unit outages not included in annual maintenance plans submitted to the ISO are subject to investigation and possible sanctions. ..."

Sincerely,
Randy Abernathy
Vice President, Client Services
California ISO

Dynegy counters that it cannot operate its plants at the low OOM rate, claiming, for example, that with delivered natural gas costs reaching $40 per million Btu, and NO x emissions costs at $50 per pound, that its El Segundo Units 1 and 2 (called to run at a 70-MW load) require a payment of $660 per megawatt-hour just to meet marginal costs.

"The Participating Generators," says Dynegy, "should be paid a compensatory rate.

"By employing OOM provisions before exhausting competitive offers to remedy potentially thin markets," says Dynegy, "the ISO has repeatedly paid Participating Generators rates that are below short-run marginal costs."

Dynegy sees the ISO as playing favorites: "The ISO has repeatedly called on Dynegy to supply it energy when the only plausible motivation that can be discerned is a cost-cutting tactic designed to avoid paying a higher price demanded from other available suppliers."

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