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California vs. Oregon

An expiring 40-year-old contract rocks the Pacific AC Intertie.

Fortnightly Magazine - August 2007

feared:

“As you know,” wrote Houston to Detmers on April 12, “market participants that choose to schedule on the Cal-ISO PACI-W line will not only pay wheeling fees, but will also pay other Cal-ISO charges, such as congestion fees and grid management charges. …

“PacifiCorp believes that market participants will make the most economical choice after considering all charges related to their transactional options.”

Once the contract termination notice was filed, the discussion deteriorated a bit. Faced with overwhelming opposition, PacifiCorp claimed that its good-faith attempts to negotiate ahead of time had been “effectively stonewalled, and then pilloried.”

It suggested that opponents wanted to block the contract termination so that they might “unjustifiably continue to enjoy the benefits of the low-cost-deal they now have.”

Carve-outs and Encumbrances

At its core, this dispute reveals something of a dirty little secret percolating across the Western Grid.

On one hand, it seems that the California utilities, both public and private, are content to allow a large regional grid management agency (such as the Cal-ISO or the BPA) to exercise regional control in scheduling, balancing, and allocating capacity rights on the region’s major transmission lines. In that way, congestion and curtailments are spread evenly among all competitors in a physical sense.

However, when it comes down to the crunch, those same utilities—and public power in particular—would prefer to set their own rates. They each want to offer transmission service under their own tariffs—the OATT that each utility must file now under FERC Order 890, which brings even public power under a modicum of FERC regulatory control.

By providing service under their own individual tariffs, each utility wins immunity from liability under the typical ISO financial regimes that assess special charges to allocate congestion and hedging rights, such as locational marginal pricing, financial transmission rights (FTRs), and, in California, congestion revenue rights.

Nevertheless, it is from these financial settlements that come the revenues that fund the operations of the ISOs and the regional transmission organizations. It is the grid access and management charges—and the other related charges that public power so much wants to avoid—that make possible the physical regional control that is so much desired.

In short, the public-power utilities want to have their cake and eat it to.

In this case, even though the various agreements provide for the Cal-ISO to serve as “path operator” for the COI, to ensure integrated operations and a sharing of curtailments in a way that serves broad regional interests—including BPA hydropower resources and a large number of public power entities that enjoy physical rights contracts—not all is as it seems.

In reality, the COTP has been permitted to join a different balancing area (the SMUD area, controlled by the Sacramento Municipal Utility District) from the two PACI lines, even though one of the three lines falls under the common control of Cal-ISO as path operator. That is one of the rights assured by the OCOA, as part of the 2004 FERC settlement ruling.

Second, the federal power marketing agency, WAPA, also has arranged for its proprietary PACI-W line to