Unexpected price increases for natural gas during the past winter heating season have stimulated action by state regulators across the country. Most recently, North Carolina and New Mexico have...
July 1, 2001
L.A. Loves a Loophole
There's no getting around itprice caps aren't for everyone.
FEDERAL ENERGY REGULATORY COMMISSION
OFFICE OF THE GENERAL COUNSEL
MAY 25, 2001
Michael J. Manning
Fulbright & Jaworski, L.L.P.
801 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2615
Dear Mr. Manning:
In your letter of May 25, 2001, you request, on behalf of the City of Los Angeles, my opinion, as General Counsel, as to whether sales of surplus energy that the Los Angeles Department of Water and Power (LADWP) makes to the California Department of Water Resources (CDWR) are subject to the price mitigation and must-offer obligations of the Commission's April 26, 2001 order in San Diego Gas & Electric Company .1 According to your letter, the LADWP makes sales of surplus energy (energy generated over and above native load requirements) to CDWR on an as available basis pursuant to a bilateral contract, where CDWR takes title and possession at a point on LADWP facilities. The sales price is not tied to any prices in the Independent Service OperatorÕs (ISOÕs) real-time market. You also state that the LADWP engages in other transactions, such as purchases of green power from turbine generators and swaps with other utilities, some of which involve energy transmitted over ISO controlled facilities prior to its receipt on LADWP's facilities. These transactions are also bilateral arrangements and none of the energy involves sales into or through the ISO real-time balancing market.
You ask, based on these facts, for an opinion as to whether LADWP's sales to CDWR and the other transactions referred to above are subject to the mitigation and must-offer obligations of the Commission's April 26, 2001, order.
I am herein providing my opinion on the questions you raise, based solely on the facts as described in your May 25, 2001, letter.
The price mitigation and must-offer requirements of the Commission's April 26, 2001 order do not apply to LADWP's sales of energy under bilateral contracts. As stated in the order with respect to the must-offer obligation, generators are required "to offer the ISO all of their current capacity in real time during all hours if it is available and not already scheduled to run through bilateral agreements ."2 (emphasis added) Similarly, the Commission provided that the price mitigation does not apply to bilateral agreements. 3 The must-offer and price mitigation portions of the order, therefore, do not apply to any bilateral transactions between LADWP and CDWR or other parties.
A non-public utility that transmits power over the ISO-controlled interstate transmission lines or sells energy through the markets operated by the ISO would be covered by the must-offer obligation and price mitigation provisions of the order, only if generation is available in real-time that is not scheduled to run pursuant to a bilateral agreement .
As provided by section 384.104(a) of the Commission's regulations, 4 the opinions expressed herein are mine as the General Counsel, and do not bind, or reflect the views of the Commission. I hope that this information is helpful to you. If