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In two instances, the California Independent System Operator backed off parts of its growing wholesale market--derivative bidding and ramp-up/down bids--Aug 25. At the same time, it began expanding its market territory to rural Nevada. Derivatives, or as CAISO calls them, “convergence bidding,” was voted out, at least for the time being. Steve Berberich, CAISO chief executive officer, is concerned about the ability of market participants to arbitrage the wholesale market. In order to take out the arbitrage opportunity, a “fundamental redesign” of the real-time market would be needed, he noted. The mechanism allowed bidders to “earn the difference between the hour-ahead and the day-ahead price” on CAISO’s wholesale market, according to James Bushnell, CAISO market monitoring committee member and University of California, Davis, professor. Market participants want derivatives bidding in order to hedge their costs and policy mandates. Constellation, for instance, uses the convergence market to trade out-of-state renewable power in order to meet its renewables portfolio mandate, according to regulatory affairs vice president Mary Lynch. Much to the consternation of generators and utilities, also voted out was the current method of compensating for back up power to be ramped up and down on request by the grid operator. Those who bid in their power plants to turn on and off at the grid operator’s request are likely to lose income under this new regime. At the same time, there’s an understanding among generators that the move is necessary to maintain transmission reliability, according to Ellen Wolfe, Western Power Trading Forum consultant. In place of the discarded compensation method, CAISO is instituting a new “flexible ramping” policy that allows the grid operator to react to changes between its 15-minute and 5-minute generator dispatch. What it also does is take away ramping generators’ opportunity cost to use that disparity. CAISO management claimed the new method provides more flexibility--particularly in light of including intermittent renewable energy. Moving to enlarge its market territory, the grid operator agreed to a process to bring in Nevada-based Valley Electric Association in 2013. The association is a rural coop near Las Vegas, with significant solar projects in the works. It makes additional capacity available to the CAISO market and benefits ratepayers, said Tom Husted, Valley Electric chief executive officer. For instance, BrightSource’s proposed 500 MW Hidden Hills solar facility in Inyo County would interconnect to Nevada through Valley Electric, said Arthur Haubenstock, BrightSource regulatory affairs director. While the grid operator addresses the nuances of its complicated market system, the simplicity and unpredictability of California’s weather may influence prices and electricity availability more than market development and manipulation. And, 2011’s weather has, so far, had a calming effect on the wholesale market. There’s been an “abnormally low demand” this summer, Berberich said. At the same time that use has been relatively low--far under 50,000 MW at peak--renewable energy contributions have been high. Berberich said there was a maximum of 2,517 MW for wind on line June 10 and 514 MW for solar on July 18. UPDATE - Aug. 26, the board voted to keep only one remaining reliability must-run contract. Dynegy's 165 MW Oakland power plant is the last facility left on the grid operator's list for contracts to keep on a wait list just in case the grid requires its services. That's a big difference from 18,000 MW under contract to wait for a dispatch call only a few years ago, according to CAISO staff.

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