ML023610388
| ML023610388 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 12/20/2002 |
| From: | Neale D US Federal Judiciary, Bankruptcy Court, Northern District of California |
| To: | California Independent System Operator Corp, Levene, Neale, Bender, Rankin & Brill, LLP, Office of Nuclear Reactor Regulation |
| References | |
| 01-30923, 94-0742640 | |
| Download: ML023610388 (5) | |
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10 11 UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA
,SAN FRANCISCO DIVISION I/
In re Case No.
01-30923 DM 13 PACIFIC GAS & ELECTRIC Chapter 11 14
- COMPANY, a California corporation, STATEMENT BY CALIFORNIA 15 INDEPENDENT SYSTEM OPERATOR 16 Debtor.
CORPORATION IN SUPPORT Or
) DEBTOR'S MOTION FOR AUTHORITY 17 Federal I.D. No.
94-0742640 TO RESUME POWER PROCUREMENT, INCLUDING PROCUREMENT OF'3/4THE 18 RESIDUAL NET SHORT POSITION AND TO INCUR POST-PETITION SECURED 19 DEBT RELATED THERETO 20 21
)
Date:
)December 23, 2002 Time:
1:30 p.m.
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Place:
235 Pine St.,
2 2 "d Floor San Francisco, CA 23 TO THE HONORABLE DENNIS MONTALI, UNITED STATES BANKRUPTCY JUDGE:
The California Independent System Operator Corporation ("ISO") hereby submits its Statement In Support Of Debtor's Motion For Authority To Resume Power Procurement, DAVID L. NEALE (SBN 141225)
DANIEL H. REISS (SBN 150573)
- LEVENE, NEALE,
- BENDER, RANKIN & BRILL L.L.P.
1801 Avenue of the Stars, Suite 1120 Los Angeles, California 90067 Telephone:
(310) 229-1234 Facsimile: (310) 229-1244 Attorneys for California Independent System Operator Corporation 3.23 1
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-11 12 13 14 15 16 17 18 19 20 21 22 23 24 2Z 26 27 28 Including Procurement Of The Residual Net Short Position And To Incur Post-Petition Secured Debt Related Thereto as follows:
I.
SUMMARY
This statement is submitted both to clarify certain points of law relating, to the Debtor's Motion For Authority To Resume Power Procurement (the "Motion"),
and to address~points raised in certain oppositions to the-Motion filed by'Merced Irrigation District
("Merced"),
the City'ofPalo Alto
("Palo Alto"),
and the Northern, California Power.,Agency
("NCPA")
(collectively, the "Oppositions").
The Oppositions disregard the federal and state regulatory requirements which the Debtor must meet and, appropriately seeks authority to meet -
to resume power pr6curement as prayed in the Motion.'
- The Oppositions argue without evidentiary support thýat the Debtor's Motion is primarily a tactic to further its own self interest withý 'respect to its present chapter 11 plan confirmation efforts.
This misleading and inflammatory argument distracts from the crucial issue to be decided, which is: does the Debtor have the authority to take those actions necessary to meet state regulatory requirements and security thresholds required by the ISO's federal tariff to resume energy procurement to meet its Residual Net Short energy 2
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position?'-
I*TheL!SO
-herein emphasizes the importance of a
I t rulinfg f6mn' thl1 "Court either (1) granting the Debtor the authority':'o 'po~t"an adequate form of security with the ISO and. re'ime-proicuring of the Residual Net Short and Ancillary Services or, alternatively, (2) determining that such action is within the'ordinary course of business for Debtor and does not require the Court's authorization.
II.
THE DEBTOR' MUST POST ADEQUATE ;SECURITY IN ORDER TO QUALIFY -AS"A-SCHEDULING COORDINATOR AND RESUME PROCUREMENT OF ENERGm TO'-COVER NET SHORT POSITION.
Zn' order t6-resume the procurementi of energy to cover its Residual'-Net,Shbkrt
- position, Debtor is, required by the ISO federal,'Tariff to 'Post adequate security for such procurement transactibns -'since it does not otherwise 'meet the Approved Credit Rating 'for Scheduling Coordinators.that establish the creditworthiness -requirements to partýicipate in the ISO's markets.'
'ISO Tariff Section 2.1.1 provides that Energy and AncilMiry Servicei (essentially, generation, capacity that is committed 'to ý the' ISO to maintain required system reserves)
"may be-tratsmitted
- into, out of or through the ISO The "Residual Net Short" is the difference between an energy provider's gross metered Demand and the resources available to it to meet that Demand, including its retained generation, hny long-term State of California Department of Water Resources contracts, and any other bilateral contracts to purchase power.
The net short represents the amount of energy that the energy provider anticipates procuring týrough the ISO markets.
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Scheduling Coordinator."
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Specifically, the ISO Tariff sets cred-iirequirements for Schteddling Coordinators to ensure, -amorig other': things, the financial via ility of the ISO markets.'
'ISO Tariff Section 2.2.3.2 requires each Scheduling Coordinator ' either to maintain an Approved Credit Rating 'or provide 'in favor of the ISO:
(i) an irrevocable and unconditional' letter of credit; (ii) an irrevocable and unconditional surety bond; (iii) an
'I irrevocable and unconditional guarantee; (iv) a' cash deposit standing to the credit of an interest b'earing escrow account maintained at la bank or financial "institution 'designated by the ISO; (v) a certificate of deposit in the name of the ISO; or (vi) a payment bond certificate in the name, of the ISO.2 In a series of orders issued during California's energy crisis regarding implementation of the 'Tariff's credit requirements In these circumstances, ' the Federal Energy Regulatory Commission
("FERC")
commanded 'that' the ISO provide all "third-party suppliers [of Energy and Ancillary Services]
assurances of a creditworthy buyer for all energy delivered to loads through' the ISO."
California Independent System SISO Tariff Section 2.2.7.2 states that the amount to be posted is intended to cover the entity's outstanding and estimated liability for either (i) the Grid Management Charge; and or (ii) Imbalance Energy, Ancillary Services' Grid Operations Charge, Wheeling Access Charge, Righ Voltage Access Charge, Transition Charge, Usage Charges and Federal Energy Regulatory Commission Annual Charges.
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Operator,Corporation, 95 F.E.R.C.
P.61,026 att 61,081, 2001 FERC LEXIS 779 **6 (April 6, 2001).
In its June 13, 2001 Order,. FERCýrequired "that _the -ISO obtain prior assurances of payment, for -all third-party power supplied to [SCE) and PG&E, whether, directly, or through purchases by DWR on their loads',, behalf,*"
California Independent System Operator Corporation,. 95 F.E.R.C.
P61,391 at 62,459, 2001 FERC LEXIS
- 1377,
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- Since January 2001 and the adoption by the California Legislature, of ABX1-I, the California Department of Water Resources _(",DWR")
has served as the creditworthy Scheduling Coordinator purchasing and scheduling the Residual Net Short for Debtor's customers.
DWR's authority to purchase power under ABXl-l expires on January 1, 2003.
When DWR ceases to purchase,and.schedule power under ABX1-l, the, ISO understands that Debtor,will again-become the Scheduling,Coordinator for all-of;itsfown Load, including purchasing* and scheduling the energy represented by its Residual Net Short position.
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10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 III. FAILURE OF THE DEBTOR TO POST THE REQUISITE SECURITY WILL POTENTIALLY HAVE SUBSTANTIAL ADVERSE IMPACT ON THE ISO' S ABILITY TO ENSURE THAT ENERGY GENERATION WILL. MEET THE ENERGY DEMAND; THEREFORE, THE, RELIEF REQUESTED IS A. SOUND EXERCISE OF BUSINESS JUDGMENT BY THE DEBTOR.
If ýDebtor does',not post the. requisitesecurity and qualify under the ISO Tariff as a Scheduling Coordinator for its Net Short Electricity position,., and DWR, is,. by statute, no longer able to fulfill that role, the ISO-will-,have no ability to provide Energy or Ancillary Services,,to Debtor, to cover the Residual Net Short.
The ISO cannot, per.Athe FERC Orders discussed aboje and the ISO Tariff, -procure Energy or Ancillary Services on behalf of Debtor's.customers.
Simply stated, if the Debtor does not, post the requisite security on a timely basis the ISO may not-permit it to serve as a Schedulilng Coordinator for its.
Residual Net Short in, accordance with the legal requirements.
A timely posting-s necessary because the posting must allow a,minimum of time for.,
the ISO to make all necessary arrangements for Debtor to begin scheduling in the ISO Day-Ahead Market on December 31,
- 2002, for purchases to be effected on January 1, 2003.
Absent such a timely post ng energy providers in the ISO market will not be assured full payment, which would undoubtedly disrupt the ISO's Schedu~ing
- process, and could potentially cause a
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disastrous loss of confidence in the viability of ISO markets.
In accordance with the ISO Tariff, the ISO relies upon the Scheduling process as a
principal fmeans to ensure that generation meets demand.
If Debtor does not post security, the issues and logistics of otherwise Scheduling or accounting for Debtors' Load (approximately 14,000 MW) and resources would severely strain the ISO's ability to match generation and demand to cover Debtor's Residual Net Short in real time.
Alternatively stated, if the Residual Net Short for any hour is in the range of 1,000 MW or greater, the reliability of the system could be impaired and load shedding (i.e. outages) in Debtor's service territory could be necessary.
This circumstance, contrary to Merced's argument, could lead to blackouts.
Accordingly, in the interest of the
- public, the Debtor, its creditors andi security holders, ISO prays for the Court to grant the Motion.,
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IV.
THE ISO REQUESTS THAT THE COURT-FIND THAT, THE DEBTOR MAY COMPLY WITH -THE.
REGULATORY FRAMEWORK OUTLINED ABOVE IN THE ORDINARY COURSE OF ITS BUSINESS WITHOUT,,FURTHER ORDER OF THE COURT PURSUANT TO 28 U.S.C. 5 959(b)-'
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In the alternative, the ISO believes that the Debtor's resumption of energy procurement to cover its Residual Net Short position and posting of security with-the ISO are,within the ordinary course business.
As set forth~in 28 U.S.C.
959(b), the Debtor:
"shall manage and operate,-theproperty,in his Ipossession according to the requirements of the valid laws of the State in which such property is situated Because the resumption of energy procurement is a
regulatory obligation of the Debtor, the ISO believes that the Court's authorization to take those actions necessary to comply with those regulations is unnecessary.
Given the rubric of the bankruptcy laws, however, the ISO recognizes the appropriateness to request express authority from the Court in an abundance of caution.
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V.
-ALTERNATIVELY, IF THE COURT FINDS THAT THE MOTION REQUESTS RELIEF OUTSIDE THE ORDINARY COURSE OF THE DEBTOR'S A BUSINESS"THE' DEBTOR DEMONSTRATES THAT MOTION SHOULD BE GRANTED PURSUANT TO,l1 U.S.C.
§5 363(B) AND 364.
For the reasons stated in Sections II and III, above, the Motion shouldbe granted pursuant to I U.S.C.
§§ 363(b) and 364, with !respect to the resumption of ýnergy procurement and incurring post-petition debt to meet the security requirements described above.
Dated:
December
, 2002 CALIF gIA I PNDENT SYSTEM OP TRCO ATON DAVID L. NEAL DANIEL H.
REISS
- LEVENE, NEALE,
- BENDER, RANKIN
& BRILL L.L.P.
Attorneys for California Independent System Operator Corporation 9
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