Until virtual bidding for short-term power purchases takes effect, the California Independent System Operator is moving to put “interim measures” in place to prevent utilities from systematically under-scheduling power purchases in the day-ahead market. The grid operator’s interim policy comes in response to a directive by the Federal Energy Regulatory Commission. “There didn’t seem to be a burning need for such an under-scheduling policy,” said Frank Wolak, grid operator market surveillance committee chair, at a July 2 meeting on the proposed policy. As California utilities increasingly rely on long-term power contracts, he said, there is less incentive for them to try to influence power prices in short-term markets than during the energy crisis of 2000-01. Then, they bought a lot more power on a short-term basis. The short-term market then was about one-third of all power trades, now it is under 5 percent. Consequently, the grid operator only plans to require utilities and other load-serving entities to report on their scheduling activities. Under-scheduling, per se, would not subject them to penalties unless FERC found their practices to be abusive to power sellers. Penalties would be assessed at either $150/MWh or $250/MWh depending upon the degree of under-scheduling. Even then, penalties would not apply when the grid operator’s peak load forecast falls more than 5 percent short of the actual peak demand, or when the real time price for power is less than the day-ahead price during the same hour. Instead, the goal of the policy would be to prevent utilities and other load-serving entities from unfairly driving down the price for the power they do purchase in the day-ahead market. The grid operator plans to use any penalty revenue to reduce its grid management charges. Hopefully, CAISO said in a June 28 draft white paper on the policy, the cure will not be worse than the disease of under-scheduling. For instance, the threat of penalties could influence utilities to rely less on low-cost out of state power on the real time market, which could raise electricity prices for consumers. Ultimately regulators hope an upcoming market redesign will prevent any unfair behavior before there is occasion to enforce the interim policy.
