FERC Rejects CAISO's "Amendment 60" Report For Retroactive Refunds Explaining Cost Allocation Errors Should Be Corrected Only Prospectively

On October 20, 2016, FERC issued an order that, among other things, rejected a refund report filed by the California Independent System Operator Corporation ("CAISO"). In so doing, FERC reiterated its discretionary authority to order refunds as well as its general policy to not exercise this discretion in situations involving cost allocation and rate design.

In May 2004, CAISO filed tariff Amendment No. 60 which, in addition to other provisions, established a three-"bucket" rate design through which must-offer generation costs were allocated depending on whether the resource was used to satisfy local, zonal, or system reliability requirements. In a series of orders from 2006 to 2011, FERC affirmed an Administrative Law Judge's finding that these cost allocation provisions were generally just and reasonable and affirmed CAISO's initially requested effective date of July 17, 2004. FERC also ordered CAISO to reclassify a certain transformer path as a "local" constraint