FERC Denies CAISO Penalty Authority, Holds Out for Board Change

The California Independent System Operator was denied specific enforcement powers but allowed general authority in most cases to penalize market manipulators by the Federal Energy Regulatory Commission. FERC did note in its February 20 order that CAISO would have an easier time exerting enforcement authority if it acquiesced to federal regulators? ongoing demand that it change the composition of its governing board. The order deepened the rift between CAISO and federal regulators. The order was ?stunningly disingenuous? in using the board?s composition as a hostage to enforcement, said CAISO board member Carl Guardino. ?FERC willy-nilly limits our ability to do something we have no control over,? sniffed board chair Michael Kahn. ?I?ll tell you what we?ll do about governance?absolutely nothing.? Kahn said that changing the board is not CAISO?s call but the state?s. ?If they want a good relationship, they should rescind the order and say it was a typo,? concluded Kahn. ?The commission interjected itself as top cat? for penalty authority, said Gary Ackerman, director of the Western Power Trading Forum. As for the commission attempting to trade market authority for a change in CAISO?s board structure, the state governance law conflicts with FERC requirements, Ackerman noted. ?Like same-sex marriages, you can?t just take the law into your own hands.? CAISO proposed penalties from $10,000 to $110,000 for violations of its rules of conduct for the electricity market. FERC, however, said that CAISO may not have ?unfettered discretion to take enforcement action.? Federal regulators added, ?Instead, upon [FERC?s] acceptance of the CAISO?s filing establishing an independent governing board, [CAISO] may only undertake enforcement of violations? where the grid operator can ?objectively? identify behavior. FERC also said that CAISO did not clearly define an ?event? for the purposes of each individual fine. Market manipulation was called into question during the energy crisis. Basically, there were no rules at CAISO prohibiting much of what is now considered manipulation, such as trading moves made infamous by Enron. The rules of conduct at stake in this federal filing were proposed guidelines to fill the profiteering regulation void. In its filing with FERC, CAISO tried to rid its market of Enron-style marketing ploys, but FERC thwarted that attempt. FERC accepted about half of CAISO?s proposals and rejected about half. ?FERC did a very good job at balancing interests,? according to Ackerman. CAISO?s governing board became a political hot potato between state and federal jurisdictions at the same time as alleged manipulation appeared. The original stakeholder board was removed by then-governor Gray Davis because it was seen as favoring generator interests. The new governor-appointed board was seen by FERC as being politically motivated instead of market motivated. FERC has been trying to get CAISO to design a new board, and the issue is currently in federal court. Last week's FERC order included: Feasible bids and schedules: While FERC found that the requirement that any bid energy must actually be capable of delivery, FERC said CAISO couldn?t hold generators responsible for operational characteristics that could later be called into question. Thus, FERC required CAISO to include a bandwidth for physical capability. Withholding sanctions redundant: FERC said that CAISO already has sanctions available for physical and economic withholding. FERC included the $250/MWh bid cap and contracted capacity as examples. Enron strategies: Although FERC said ?clear, reasonable rules are the best method by which to prevent inappropriate ?gaming? behavior,? federal regulators said the proposed rules should be improved and suggested its own rules currently in effect. Zero-rated paths: FERC agreed with CAISO to prohibit intentionally scheduling zero-rated paths. Circular scheduling: FERC accepted CAISO?s taboo against circular scheduling. However, CAISO may not redefine circular scheduling ?at its discretion.? Confidentiality: CAISO?s plan to divulge scheduler information that met certain conditions was quashed. CAISO?s idea was to make the market more transparent, but FERC said there was a lack of ?appropriate safeguards to protect the information.?

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FERC Denies CAISO Penalty Authority, Holds Out for Board Change

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