CAISO Surveillance Committee Considers Another Bid Cap

By Published On: August 24, 2007

The California Independent System Operator Market Surveillance Committee is considering a price cap for bids in constrained load pockets. In an August 10 meeting, the grid operator oversight committee discussed the cap in order to prevent generators from over-bidding these costs in its pending new wholesale market, which could drive up prices. In times of short supplies, generators called on by CAISO are allowed to recover the start-up and minimum load costs. The problem with the cap, however, according to Eric Hildebrandt, CAISO manager of market monitoring systems, is that the percentage has to be set too high to cover all power plants. Industry representatives maintain there won’t be a big enough incentive to bid at 200-300 percent. A Southern California Edison envoy suggested there should be no market-based bidding at all until the new market redesign is in place–now targeted for March. Other stakeholders are cynical that the market redesign is considering making any changes at all when it was originally said to be the ultimate unwavering market package. In other actions, the panel is considering that instead of using the three present pricing zones in Southern and Northern California, the grid operator could use as many as 3,000 aggregated pricing nodes to price electricity transmission. The pricing question folds into the pending market redesign for the state’s wholesale electric markets over which the California Independent System Operator has control. The oversight committee also entertained a third possibility–using the nodal level with limits on how a trader can go in the market, so that market prices can’t leverage one market over another at the nodal level. In that whole market, convergence (or virtual) bidding is expected to take place. Thus, the committee entertained the question of where to price transmission–at the current zones, at nodes, or a nodal price with limits. Also in valuing power in a future of short supplies, the committee considered scarcity pricing as a way to get end-user demand-response. Under the grid operator’s market redesign, scarcity pricing may never be needed, if there is enough demand response, according to the committee. As the grid operator joins with other state entities in trying to effect lower electricity consumption during times of supply constraints, the committee is working to determine specific relationships between demand response levels and scarcity prices. The committee is also open to questions on how CAISO will give a market signal when there is scarcity.

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