The members of the Federal Energy Regulatory Commission on Oct. 3 rejected a June 17 complaint from La Paloma Generating Co. LLC asking the commission direct the California Independent System Operator (CAISO) to grant La Paloma a reliability must-run (RMR) designation for the portion of its generating capacity not currently designated as resource adequacy capacity.
La Paloma owns a 965.4-MW, four-unit combined cycle natural gas-fired facility located in McKittrick, California, that commenced operation in 2003 and is directly interconnected to Pacific Gas and Electric’s (PG&E) Midway Substation. Currently, 42 MW of Unit Two of the facility’s total capacity is under a resource adequacy contract. As such, La Paloma is required to bid energy generated from this capacity into CAISO’s energy market.
In March 2016, La Paloma submitted an outage request to CAISO for Unit Two for a period of June 18, 2016, through June 26, 2016, to perform a required maintenance inspection. While the outage request was initially approved by CAISO, an impending heat wave led CAISO to cancel all discretionary outages on June 17, 2016, including La Paloma’s requested outage. Subsequently, La Paloma submitted a request to reschedule its canceled outage to perform the required inspection. That request was approved by CAISO.
La Paloma explained that despite bidding energy from all four of its facility’s units into CAISO’s market, it has seen a substantial decline in its market revenues. La Paloma has determined that continued economic operation of its facility is not justified, at least in the short to medium term. La Paloma further explained that because its efforts to enter into agreements to sell its non-resource adequacy capacity had failed, it submitted maintenance outage requests to CAISO for Unit One, Unit Three, and Unit Four of its facility on May 13, 2016, in the interest of reducing economic losses to the greatest extent possible. La Paloma’s requested outages included the period July 1, 2016, to Nov. 30, 2016, for each unit.
In its May 13 outage requests, La Paloma stated the reason for requesting the outages as: “No resource adequacy procured from unit, and operation is expected to be uneconomic with Path 269 internal transfer reservations and online constraints.” On June 6, 2016, CAISO denied La Paloma’s outage requests for Unit One, Unit Three, and Unit Four because La Paloma requested the outages for economic reasons, which CAISO found to be inconsistent with its tariff.
In rejecting the outage requests, La Paloma stated that CAISO advised that its tariff does not have a procedure for entertaining economic outages, and that maintenance must be underway for the entire outage period to obtain a maintenance outage.
La Paloma asserted that by denying its requests for economic outages for Unit One, Unit Three, and Unit Four, CAISO has prevented La Paloma from mitigating its financial losses and has compelled La Paloma to maintain operations without providing an appropriate mechanism for recovering costs. This, La Paloma argued, interferes with its investment-backed expectations and is harmful to the public interest.
La Paloma also stated that CAISO’s representatives have indicated that the La Paloma facility is not needed for reliability purposes. La Paloma stated that if it is compelled to maintain operations without adequate financial compensation, losses are estimated to exceed $39 million annually. La Paloma argued that if the commission does not intervene, La Paloma will have suffered a regulatory taking.
La Paloma asserted that its facility is critically important to the reliability of CAISO. La Paloma said this is based upon findings in privately-commissioned studies, its location at the Midway Substation, the frequency and level of dispatch by CAISO, and the natural gas supply shortage at Aliso Canyon. La Paloma asserted that third party studies indicate that power flow on Path 26 would be restricted to approximately half of its maximum rating without La Paloma’s units, and that retiring the units could result in line restrictions. La Paloma also asserted that the cancellation of its originally scheduled outage for Unit Two, as well as the denial of its outage requests for Unit One, Unit Three, and Unit Four is indicative of CAISO’s need for La Paloma’s facility.
La Paloma argued that the commission has recognized that a regional transmission organization (RTO) or independent system operator (ISO) cannot compel a generator to maintain operations for an indefinite period of time, and that an RTO or ISO must compensate a generator if it desires to keep the unit in service when the generator has stated its intent to take the unit out of service. La Paloma stated that the commission has already found that the CAISO market must provide appropriate financial incentives to generators where their output is needed, but that CAISO has failed to do so.
According to La Paloma, since the commission rejected CAISO’s proposed Flexible and Reliability Resource Retention mechanism and ordered a technical conference in 2013, CAISO has failed to develop a market-based mechanism that provides needed resources with the requisite incentive to remain in the market. La Paloma argued that to avoid the occurrence of a regulatory taking, the commission should determine that appropriate compensation should be provided for La Paloma’s continued operation. La Paloma proposed that this could be achieved through an annual RMR agreement or another compensatory contract.
CAISO responded in part that the denial of La Paloma’s outage requests for Units One, Three, and Four does not amount to an impermissible taking, and that La Paloma’s complaint should be denied. CAISO argued that the denial of La Paloma’s outage requests cannot amount to a regulatory taking because CAISO is not authorized by a governmental entity to take property, and that no commission precedent would support such a takings claim based on a utility action. Even if the commission’s inaction could result in a regulatory taking, CAISO stated that it would not be possible for La Paloma to establish a takings claim under United States Supreme Court precedent.
Said the Oct. 3 FERC decision: “We deny La Paloma’s complaint. First, we find that La Paloma’s complaint fails to identify, as required by Rule 206 of the Commission’s Rules of Practice and Procedure, any ‘action or inaction which is alleged to violate applicable statutory standards or regulatory requirements.’ In denying La Paloma’s economic outage request, CAISO properly applied the outage-related provisions of Section 9.3 of its tariff, as discussed below. Therefore, La Paloma cannot succeed on its complaint by merely asserting that CAISO’s denial of its economic outage request has adverse financial ramifications; rather, it must also identify the action or inaction that allegedly violated the FPA or regulations thereunder. La Paloma, however, has failed to do so. La Paloma did not argue that the relevant tariff provisions are unjust and unreasonable or unduly discriminatory, nor did it support any assertion that CAISO’s actions were otherwise contrary to the FPA or any regulation or order of the Commission.”