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Under recently approved market changes, the California Independent System Operator seeks to double down to protect reliability in the states of the Western Interconnection it serves while guarding the transition to growing levels of variable and distributed renewables.

The Federal Energy Regulatory Commission approved CAISO's interim market mechanisms in late June to allow more efficient energy transfers through its system. The aim is to protect reliability during extreme weather-driven demand spikes and supply shortages. The changes were developed through an expedited Market Enhancements for Summer 2021 Readiness initiative and in response to the August 2020 heat wave and outages.

At stake is crucial energy imported and exported through the CAISO system. At times of constrained supply, CAISO has been forced to prioritize between exporting resources or using energy to serve California load. Discriminating in favor of native California load raises red flags for CAISO’s neighboring balancing authorities.

Generation traded between states has long been “wheeled,” or passed through the CAISO system. But new threats to reliability make fast and certain access to it “critical” to the resource adequacy of Western Interconnection load serving entities and balancing authorities, CAISO President and CEO Elliot Mainzer said during a July 13, CAISO stakeholder workshop . It launched a new market framework for prioritizing energy deliveries.

California Public Utilities Commission President Marybel Batjer highlighted how tens of millions “have jointly endured extreme heat waves in recent weeks and are preparing for the threats and impacts still ahead of us due to dry conditions.” She added how wildfire and drought impacts “reverberate across state lines, which makes Western collaboration on energy delivery imperative.”

The Final Root Cause Analysis of the Aug. 14-15 2020 blackout by CAISO, CPUC, and the California Energy Commission, found the rotating outages were due to extreme weather conditions, inadequate resource adequacy planning, and failed market mechanisms.

CAISO’s proposal and the FERC ruling

In response, last December the CPUC’s 2019 order for 3.3 GW of emergency generation was accelerated for availability this summer. On March 25, the Commission increased the state’s planning reserve margin from 15% to 17.5%.

After FERC approved CAISO’s separate effort to enhance generation and storage availability , the grid operator began expediting market mechanism revisions to better balance supply and demand. On June 25, FERC accepted both of CAISO’s proposed interim and longer-term revisions to its Open Access Transmission Tariff ( Docket ER21-1790-000 ).

Market priorities modified

The new enhancements modify market priorities. Rules for this summer were put in place in July. The longer-term framework for summer 2022 and beyond must be resubmitted for final FERC approval by June 2022.

The two CAISO revisions approved aim to balance serving native load and exporting and wheeling transactions reliably while protecting open access to the CAISO system for all resource providers, as required by FERC Orders 888 and 890, according to federal regulators.

The first revision protects CAISO's native load when the system becomes stressed. That will preserve CAISO access to resource adequacy capacity, FERC said.

The second revision addresses the impact of energy wheeled through CAISO’s system. Some, called “priority wheeling through,” will get the same priority as CAISO native load. The rest, called “nonpriority wheeling through,” will have a lower priority. The priority assigned is to be transparently defined based on the off-taker’s ongoing and peaking needs and other market factors.

CAISO’s External Load Forward Scheduling Rights Process , launched by the July 13 workshop, begins a collaboration with stakeholders on a long-term framework to “meet the needs of California load serving entities as well as others who depend on our transmission system,” Mainzer said.

The ISO workshop

The current framework allows load serving entities’ scheduled generation to be delivered when there is sufficient capacity, CAISO Lead Infrastructure and Regulatory Policy Developer Milos Bosanac reported to the workshop . But, when and where supply or transmission capacity is insufficient, delivery is curtailed, he said.

That current process leaves “uncertainty” about whether there will be sufficient system capacity or out-of-state load serving entities will be able to serve load, Bosanac added.

A joint presentation from Arizona’s investor-owned utilities and the Salt River Project stressed the need for forward contracts and a “forward transmission rights allocation process.”

Arizona load serving entities “have robust forward planning to protect reliability for our customers,” said Salt River’s Director of Supply, Trading, and Fuels Bobby Olsen. “But tight supply days are increasing, and without forward contracts to guarantee delivery, Southwest suppliers’ energy purchases of Northwestern hydropower or wind to be wheeled through CAISO might go to California’s native load.”

Not finding a solution may have “collateral implications, like greater price volatility or greater build out and capital requirements, which could impact customer bills,” Olsen added.

Mainzer stressed that the principles of native load protection and open, non-discriminatory transmission service in the interim mechanisms “are important guides.” He added that in addition there is “the principle of looking out for your neighbor."