CAISO Pins Reliability Premium for Electric Market at $13/MWh

By Published On: September 8, 2006

The price of electricity contracted outside of the grid operator’s real-time market during peak consumption from 2003 to 2005 was $13/MWh more than the real-time market price, according to a report released September 1. While acknowledging that utilities are paying a premium for price certainty – or risk aversion – with longer-term energy deals, the California Independent System Operator played down the actual cost of contracted energy. “They may be paying a premium, but it’s not going to be a $13 difference if the demand is shifted to [buying] in the real-time market because the real-time market prices would be higher,” said Greg Cook, CAISO manager of tariff and regulatory policy development. The study found that, on average during high-demand hours, the price of electricity outside of its real-time market was $13/MWh more. For instance, if the real-time market price for the moment was $60/MWh, the contract price would be $73/MWh. However, if utilities shift their energy buys to the real-time market to take advantage of the lower price, CAISO believes that the real-time market price will rise to take advantage of the increase. Cook said the price discrepancy for this year shows the same trend. The grid operator would not hazard a guess as to the total cost of using forward contracts to lock in supply rather than using the currently lower-cost real-time market. Cook did say that the grid operator’s current market has some of the wrong signals that cause “quite a bit of [transmission] congestion,” which, in turn, depresses prices on the real-time market. During the energy crisis, CAISO’s real-time market handled more than 30 percent of trades. Recently it has dwindled to less than 5 percent of trades.

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