ML023610388

Statement by California Independent System Operator Corporation in Support of Debtor'S Motion for Authority to Resume Power Procurement, Including Procurement of Residual Net Short Position & to Incur Post-Petition Secured Debt Related Ther

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)

Text

V I 1 DAVID L. NEALE (SBN 141225) Including Procurement Of The Residual Net Short Position And 2 2 DANIEL H. REISS (SBN 150573)

Incur Post-Petition Secured Debt Related Thereto as 3

LEVENE, NEALE, BENDER, RANKIN & BRILL L.L.P. 3 To 1801 Avenue of the Stars, Suite 1120 4 Los Angeles, California 90067 4 follows:

Telephone: (310) 229-1234 5 I.

SUMMARY

5 Facsimile: (310) 229-1244 6 Attorneys for California Independent 3.23 6 This statement is submitted both to clarify certain System Operator Corporation 7 points of law relating, to the Debtor's Motion For Authority To 7

8 8 UNITED STATES BANKRUPTCY COURT Resume Power Procurement (the "Motion"), and to address~points 9

9 NORTHERN DISTRICT OF CALIFORNIA raised in certain oppositions to the-Motion filed by'Merced 10 10

,SAN FRANCISCO DIVISION Irrigation District ("Merced"), the City'ofPalo Alto ("Palo

-11 11 and the Northern, California Power.,Agency ("NCPA")

12 Alto"),

I/ In re Case No. 01-30923 DM 13 (collectively, the "Oppositions"). The Oppositions disregard 13 PACIFIC GAS & ELECTRIC Chapter 11 14 COMPANY, a California 14 the federal and state regulatory requirements which the Debtor corporation, STATEMENT BY CALIFORNIA 15 INDEPENDENT SYSTEM OPERATOR 15 must meet - and, appropriately seeks authority to meet - to Debtor. CORPORATION IN SUPPORT Or 16 resume power pr6curement as prayed in the Motion.'

• The 16 - ) DEBTOR'S MOTION FOR AUTHORITY 17 Federal I.D. No. 94-0742640 TO RESUME POWER PROCUREMENT, 17 INCLUDING PROCUREMENT OF'3/4THE Oppositions argue - without evidentiary support - thýat the 18 18 RESIDUAL NET SHORT POSITION AND TO INCUR POST-PETITION SECURED Debtor's Motion is primarily a tactic to further its own self 19 DEBT RELATED THERETO 19 interest withý 'respect to its present chapter 11 plan 20 20 efforts. This misleading and inflammatory 21 ) Date: )December 23, 2002 21 confirmation Time: 1:30 p.m.

235 Pine St., Floor 22 argument distracts from the crucial issue to be decided, which 22 ) Place: 2 2 "d San Francisco, CA 23 23 is: does the Debtor have the authority to take those actions TO THE HONORABLE DENNIS MONTALI, UNITED STATES BANKRUPTCY 24 24 necessary to meet state regulatory requirements and security JUDGE:

25 2Z to resume The California Independent System Operator thresholds required by the ISO's federal tariff 26 26 Corporation ("ISO") hereby submits its Statement In Support Of energy procurement to meet its Residual Net Short energy 27 27 Debtor's Motion For Authority To Resume Power Procurement, 28 28 2

1 position?'- I*TheL!SO

-herein emphasizes I thet importance of a 2

Controlled Grid only if scheduled By :a'" Scheduling rulinfg f6mn' thl1 "Court either (1) granting the Debtor the Coordinator." f:

3 authority':'o 'po~t"an adequate form of security with the ISO Specifically, the ISO Tariff sets cred-iirequirements for 4

and. re'ime- proicuring of the Residual Net Short and Ancillary Schteddling Coordinators to ensure, -amorig other': things, the 5

Services or, alternatively, (2) determining that such action financial via ility of the ISO markets.' 'ISO Tariff Section 6

is within the'ordinary course of business for Debtor and does 7 2.2.3.2 requires each Scheduling Coordinator ' either to not require the Court's authorization. 8 maintain an Approved Credit Rating 'or provide 'in favor of the II. THE DEBTOR' MUST POST ADEQUATE ;SECURITY IN ORDER TO 9 ISO: (i) an irrevocable and unconditional' letter of credit; QUALIFY -AS"A- SCHEDULING COORDINATOR AND RESUME PROCUREMENT OF 10 (ii) an irrevocable and unconditional surety bond; (iii) an

'I 11 ENERGm TO'-COVER NET SHORT POSITION. irrevocable and unconditional guarantee; (iv) a' cash deposit 12 Zn' order t6-resume the procurementi of energy to cover its standing to the credit of an interest b'earing escrow account 13 Residual'-Net ,Shbkrt position, Debtor is, required by the ISO 14 maintained at la bank or financial "institution 'designated by federal,'Tariff to 'Post adequate security for such procurement 15 the ISO; (v) a certificate of deposit in the name of the ISO; 2

transactibns -'since it does not otherwise 'meet the Approved 16 or (vi) a payment bond certificate in the name, of the ISO.

Credit Rating 'for Scheduling Coordinators.that establish the 17 In a series of orders issued during California's energy creditworthiness -requirements to partýicipate in the ISO's 18 crisis regarding implementation of the 'Tariff's credit markets.'

19

'ISO Tariff Section 2.1.1 provides that Energy and requirements In these circumstances, ' the Federal Energy 20 AncilMiry Servicei (essentially, generation, capacity that is Regulatory Commission ("FERC") commanded 'that' the ISO provide 21 committed 'to ý the' ISO to maintain required system reserves) all "third-party suppliers [of Energy and Ancillary Services]

22 "may be-tratsmitted . . . into, out of or through the ISO assurances of a creditworthy buyer for all energy delivered to 23 24 loads through' the ISO." California Independent System

-' The "Residual Net Short" is the difference between an energy 25 provider's gross metered Demand and the resources available to it to meet SISO Tariff Section 2.2.7.2 states that the amount to be posted is that Demand, including its retained generation, hny long-term State of intended to cover the entity's outstanding and estimated liability for California Department of Water Resources contracts, and any other bilateral 26 either (i) the Grid Management Charge; and or (ii)Imbalance Energy, contracts to purchase power. The net short represents the amount of energy Ancillary Services' Grid Operations Charge, Wheeling Access Charge, Righ that the energy provider anticipates procuring týrough the ISO markets. 27 Voltage Access Charge, Transition Charge, Usage Charges and Federal Energy 28 Regulatory Commission Annual Charges.

3 4

1

,Corporation, 95 F.E.R.C. P.61,026 att 61,081, 2001 III. FAILURE OF THE DEBTOR TO POST THE REQUISITE SECURITY WILL Operator 2

In its June 13, 2001 POTENTIALLY HAVE SUBSTANTIAL ADVERSE IMPACT ON THE ISO' S FERC LEXIS 779 **6 (April 6, 2001). 3 assurances of ABILITY TO ENSURE THAT ENERGY GENERATION WILL. MEET THE ENERGY Order,. FERCýrequired "that _the -ISO obtain prior 4

[SCE) and PG&E, DEMAND; THEREFORE, THE, RELIEF REQUESTED IS A. SOUND EXERCISE OF payment, for -all third-party power supplied to DWR . on their BUSINESS JUDGMENT BY THE DEBTOR. . ... -,

whether, directly, or through purchases by . .

7 If ýDebtor does' ,not post the. requisitesecurity and loads', , behalf,*" California Independent System Operator 8 for Corporation,. 95 F.E.R.C. P61,391 at 62,459, 2001 FERC LEXIS qualify under the ISO Tariff as a Scheduling Coordinator 9

• 22 (June:13, 2001) its Net Short Electricity position,., and DWR, is,. by statute, no

1377, 10

- Since January 2001 and the adoption by the California longer able to fulfill that role, the ISO-will-,have no ability Energy or Ancillary Services,,to Debtor, to cover the Legislature, of ABX1-I, the California Department of Water 12 to provide Resources _(",DWR") has served as the creditworthy Scheduling 13 Residual Net Short. The ISO cannot, per.Athe FERC Orders scheduling the Residual Net Short 14 discussed aboje and the ISO Tariff, -procure Energy or Coordinator purchasing and customers. DWR's authority to purchase power 15 Ancillary Services on behalf of Debtor's.customers.

for Debtor's 16 Simply stated, if the Debtor does not, post the requisite under ABXl-l expires on January 1, 2003. When DWR ceases to 17 to serve purchase ,and.schedule power under ABX1-l, the, ISO understands security on a timely basis the ISO may not-permit it 18 again-become the Scheduling,Coordinator for as a Schedulilng Coordinator for its. Residual Net Short in, that Debtor ,will 19 all-of;itsfown Load, including purchasing* and scheduling the accordance with the legal requirements. A timely posting-s 20 energy represented by its Residual Net Short position. necessary because the posting must allow a,minimum of time for.,

21 22 the ISO to make all necessary arrangements for Debtor to begin 23 scheduling in the ISO Day-Ahead Market on December 31, 2002, 24 for purchases to be effected on January 1, 2003. Absent such 25 in the ISO market will not a timely post ng energy providers 26 be assured full payment, which would undoubtedly disrupt the 27 ISO's Schedu~ing process, and could potentially cause a 28 8

5

4i J

'5 disastrous loss of confidence in the viability of ISO markets. IV. THE ISO REQUESTS THAT THE COURT- FIND THAT, THE DEBTOR MAY 2

In accordance with the ISO Tariff, the ISO relies upon the COMPLY WITH -THE. REGULATORY FRAMEWORK OUTLINED ABOVE IN THE 3

Scheduling process as a principal fmeans to ensure that ORDINARY COURSE OF ITS BUSINESS WITHOUT,,FURTHER ORDER OF THE 4

generation meets demand. If Debtor does not post security, S COURT PURSUANT TO 28 U.S.C. 5 959(b)-' T;:,; -,

the issues and logistics of otherwise Scheduling or accounting 6 In the alternative, the ISO believes that the Debtor's for Debtors' Load (approximately 14,000 MW) and resources 7 resumption of energy procurement to cover its Residual Net would severely strain the ISO's ability to match generation 8 Short position and posting of security with-the ISO are,within and demand to cover Debtor's Residual Net Short in 9

real time. the ordinary course business. As set forth~in 28 U.S.C.

10 Alternatively stated, if the Residual Net Short for any hour 959(b), the Debtor:

11 is in the range of 1,000 MWor greater, the reliability of the "shall manage and operate,-theproperty,in 12 system could be impaired and load shedding (i.e. outages) in 13 his Ipossession according to the Debtor's service territory could be necessary. 14 requirements of the valid laws of the This circumstance, contrary to Merced's argument, could 15 State in which such property is situated lead to blackouts. Accordingly, in the interest of the 16 public, the Debtor, its creditors andi security holders, ISO 17 Because the resumption of energy procurement is a 18 prays for the Court to grant the Motion., regulatory obligation of the Debtor, the ISO believes that the 19 Court's authorization to take those actions necessary to 20 comply with those regulations is unnecessary. Given the 21 22 rubric of the bankruptcy laws, however, the ISO recognizes the 23 appropriateness to request express authority from the Court in 24 an abundance of caution.

25 26 27 28 78 8

I V. -ALTERNATIVELY, IF THE COURT FINDS THAT THE MOTION 2 - '

A REQUESTS RELIEF OUTSIDE THE ORDINARY COURSE OF THE DEBTOR'S THAT MOTION SHOULD BE A BUSINESS"THE' DEBTOR DEMONSTRATES 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 4'.

LEVENE, NEALE, BENDER, RANKIN

& BRILL L.L.P.

Attorneys for California Independent System Operator Corporation 9