Grid Operator Moves to Halt New Manipulation

By Published On: September 7, 2012

In the first half of August alone, the California Independent System Operator claimed it found $5 million in excessive costs from alleged gaming of its markets. In response, it applied to federal regulators Aug. 28 to immediately change the parameters of a tariff to curb market manipulation. While not naming the single market participant it has “observed” practicing the alleged manipulative bid strategies, the grid operator told the Federal Energy Regulatory Commission that it’s only seen the strategies this summer. It points indirectly to the reliability concerns surrounding the San Onofre Nuclear Generating Station’s unavailability. The grid operator’s concerns about tariff vulnerabilities are in two areas. The first is the area of “exceptional dispatch.” That applies “primarily [to] older resources that can increase output only slowly at lower operating levels,” according to the grid operator. By keeping those plants at the very minimum level, they can wait until the operator dispatches the energy. Then, those units can bid in at a higher price. It’s like you have a car in the driveway capable of moving that is just sitting there. You have no reason to keep it idling because you’re just hanging out. You get a call from your boss to hightail it somewhere. You have to find the keys. Warm it up. Get to second gear before its power to transport becomes available. Once on the road, you can get paid top dollar for speed. The second instance is using the timing of the market for getting paid above market price. This “residual imbalance energy” market allows a generator to get paid higher prices for any time less than an hour that it is ramping up or down. The market is set so the generator gets an hourly clearing price once it’s delivering, but it can bid in higher-than-clearing-prices for the short-term ramping phase. CAISO’s seen prices in the latter, more complicated strategy rise in the last year from $1-$2 million a month to $2 million in June and July--with a big leap in August. Although the total excess costs to the grid operator were pegged at $5 million, the bidder observed by the grid operator received an “excess gain” of $6 million from June to mid-August, according to Jeff McDonald, CAISO manager, market analysis and mitigation.

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