CAISO Postpones Market Redesign to November 2007

By Published On: January 27, 2006

The start date of the California Independent System Operator’s market redesign was delayed once again. The launch was pushed back from April 1, 2007, to November 1, 2007, the grid operator announced January 24. More time is needed to modify software to reflect additional redesign changes and to test the system, according to CAISO officials. The extra months will also give the power industry additional time to prepare for the major market overhaul. “A few months of delay are well understood if the design is right,” said Yakout Mansour, CAISO chief executive officer. However, he noted that the postponement will not allow changes to the market redesign scope or major policy matters. Indeed, CAISO officials plan to file the tariff for the new market program with federal regulators on February 6. They expect the Federal Energy Regulatory Commission to approve it by March 2007. Last month, Mansour estimated that further changes to the grid operator’s market overhaul would delay the planned February 1, 2007, launch until April 2007 (Circuit, Dec. 16, 2006). The conceptual redesign was filed with FERC last May. The extra work on the so-called Market Redesign and Technology Upgrade project will cost the grid operator $30 million, including $7 million in contingency funding. This will bring the total cost of the project to $170 million. Mansour said this week that CAISO decided to delay the start date after a complete program review indicated the need for further work and time for an initial shakedown period. “I would not put a major change like this in place pre-summer,” he said. Energy trading reaches a fevered pitch as demand soars with summer temperatures. The review also showed that the program had been delayed because key components were not completed on time, creating bottlenecks, added Charles King, CAISO market development and program management vice-president. Mansour said that numerous “must have” scope items were recently identified. CAISO found in its review that it needs time to produce “business practice manuals that are critical to understanding the market design.” In a statement following the meeting, CAISO said that the extra cost is justified because the market redesign ultimately will save money by making better use of the state’s transmission system and generating plants. Redesign “will lower electricity costs, bringing benefits to all consumers.” In other action, in what Mansour characterized as a “good story,” CAISO’s finances improved in 2005, according to a preliminary financial report. Operating revenue for the year was $221.6 million, $8.6 million more than the $212.6 million projected. Operating expenditures totaled $141.2 million, $5.5 million less than expected. The grid operator spent $36.8 million on capital improvements, leaving itself an operating reserve of $71.3 million. The grid operator also kicked off a proceeding to set a resource-adequacy tariff by June 1. CAISO plans to issue a white paper and draft tariff February 3. It will file the tariff with federal regulators by March 10 so the agency can approve it before June 1. That coincides with the time the California Public Utilities Commission resource-adequacy requirements take effect. The CPUC set a 15-17 percent supply cushion requirement for utilities (Circuit, Oct. 28, 2005). “This is a very tight schedule and has a hard and fast deadline,” said Mark Rothleder, CAISO market and product development principal. The CAISO board also approved a minor modification to the market redesign program. Under the change, metered subsystems with power plants – such as municipal utilities that belong to the Northern California Power Agency – will be able to settle accounts for their power with CAISO at their own load-aggregation-point price. Before the change, settlement would have been based on the load-aggregation-point price of the nearest investor-owned utility. The change is intended to provide an incentive for the municipal utilities to operate their own generating plants in congested areas, according to Lorenzo Kristov, CAISO principal market architect. He said that change was negotiated in time to be included in CAISO’s upcoming tariff filing with FERC.

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