On October 3, 2016, FERC denied La Paloma Generating Company, LLC’s (“La Paloma”) complaint (“Complaint”) requesting that FERC order the California Independent System Operator Corporation (“CAISO”) to designate the portion of La Paloma’s generating capacity that is not currently designated as resource adequacy capacity as reliability must-run (“RMR”) units.
La Paloma owns a four-unit generating facility located in McKittrick, California. According to La Paloma, 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. On May 13, 2016, La Paloma submitted maintenance outage requests to CAISO for Unit One, Unit Three, and Unit Four of its generating facility in the interest of reducing economic losses. La Paloma excluded Unit Two from its requests because 42 MW of Unit Two’s capacity is subject to a resource adequacy contract.
On June 6, 2016, CAISO denied La Paloma’s outage requests. According to La Paloma, CAISO denied the requests because the CAISO tariff does not provide for economic outages. La Paloma then filed its Complaint pursuant to the Federal Power Act against CAISO on June 17, 2016.
In the Complaint, La Paloma alleged that CAISO’s denial of its request for economic outages constitutes a regulatory taking because it prevents La Paloma from mitigating financial losses and compels La Paloma to maintain operations without providing for cost recovery. Further, La Paloma asserted that its generating facility is important for the reliability of CAISO, and refers to a privately-commissioned study and power flow models as supporting evidence. La Paloma requested that FERC grant relief by directing CAISO to grant an annual RMR contract for Unit One, Unit Three, and Unit Four of La Paloma’s generating facility.
CAISO maintained that its denial of La Paloma’s outage requests for economic reasons does not amount to a regulatory taking because it has not denied La Paloma of all beneficial use of its generating facility. Additionally, CAISO reiterated that its tariff, to which La Paloma is a voluntary participant, does not provide for economic outages.
In denying La Paloma’s complaint, FERC concluded that La Paloma failed to demonstrate that CAISO’s refusal to grant economic outages violated any statute or regulatory standards. Specifically, FERC found that CAISO acted within the parameters of its FERC-approved tariff which “contains no language regarding the type of economic outage request that La Paloma sought.” Moreover, FERC found that even if La Paloma had asserted a valid claim, the requested RMR designations would not be appropriate relief, because RMR contracts are intended to address reliability rather than economic hardship. Finally, FERC found that La Paloma failed to demonstate that it has taken any action to mitigate economic losses beyond submitting the outage requests.
FERC’s order denying La Paloma’s Complaint is available here.