Federal regulators Tuesday ordered the California grid operator to quit giving the Department of Water Resources preferential treatment when it buys electricity.

The DWR buys power on behalf of Pacific Gas & Electric Co. and Southern California Edison Co. The Federal Energy Regulatory Commission also ordered the California Independent System Operator to provide market transparency by posting detailed reasons and circumstances for its out-of-market power purchases. Out-of-market transactions are last minute bilateral contracts made outside normal bidding procedures to fill unexpected energy needs.

But FERC turned down a request by Reliant Energy Inc., Houston, and Mirant Corp., Atlanta, Ga., to open an investigation into alleged violations of the Federal Power Act by the California ISO.

Mirant and Reliant claimed a high level of more-expensive, out-of-market purchases was evidence the ISO was favoring the DWR. The companies complained about the failure of the ISO to dispatch power according to the bids as spelled out in the tariff. They alleged the ISO is buying energy from the DWR outside of and in preference to the bids.

The ISO said it hasn’t violated the Federal Power Act because the DWR isn’t a competitor or “similarly situated” to Reliant and Mirant in the ISO markets. The ISO has asserted it has the right to give “nonpublic” marketing and pricing information to the DWR and withhold that information from other market participants. The ISO said DWR provides financial backing and is a nonprofit supplier in the real-time electricity markets to the ISO.

Neither Reliant nor Mirant is providing financial backing to the ISO or is a guarantor of the ISO’s real-time operations. Therefore, ISO concluded the generators and DWR are not competitors.

FERC rejected the notion and ordered the ISO to treat the DWR the same way it treats other participants in the market. The commission said the ISO incorrectly claimed the DWR is entitled to special consideration as a sole guarantor of payment.

The commission denied the request for an investigation because the facts were not in question. FERC Chairman Pat Wood indicated after the meeting if the ISO doesn’t comply with the order the commission will deal with the problem should it arise.